Campbell Soup Cuts Share Diet, Buys Bolthouse (Update 1)

Updated to reflect spokesperson comment.

NEW YORK (TheStreet) --Campbell Soup (CPB) is buying private equity owned organic foods company Bolthouse Farms, in a strategy change that favors using new drinks and health food snacks like salads to grow its earnings over a previously announced share buyback plan.

Campbell Soup will buy Bolthouse -- a maker of carrot filled salad snack packages and organic juices -- from private equity firm Madison Dearborn Partners in a deal that values the company founded in 1915 at $1.55 billion in cash. Campbell expects a push into organic foods growth opportunities can supplement flat current sales trends, as it suspends a multi-billion dollar share repurchase plan.

For the Camden, N.J.-based foods giant that's seen its shares stagnate in the last year on weak growth expectations, the deal is also an added diversification from its soups brands that don an Andy Warhol-designed label -- and a complement to its popular drinks like V8 vegetable juices.

For new chief executive Denise Morrison, who became CEO of Campbell Soup in August 2011, the deal marks a change of strategy in the handling of the soup maker's cash. As part of the deal Campbell Soup will scrap a share repurchase plan in favor of growing its earnings by adding Bolthouse's near double-digit annual growth to a stagnant revenue forecast.

In November, Campbell Soup said it would buy back an additional $5 billion in the company's stock, adding to a previously implemented $4 billion buyback program for 2011 and beyond. The company also announced a plan to lay off 770 workers in November as it tried to consolidate its share count and operations to grow earnings.

However, with the acquisition of Bolthouse Farms, CEO Morrison now appears to be looking at investing in top-line growth to grow the company's earnings per share, which Campbell Soup previously projected would fall by roughly 5% in 2012 on flat sales expectations.

"Bolthouse is the first such move to create growth away from soup," noted Deutsche Bank analyst Eric Katzman, who said that Morrison's separation of Campbell Soup from V8 Beverages signaled a greater focus on mergers.

"From a distance, the acquisition appears logical as it bolsters the V8 business and allows greater participation in a growth category," wrote Katzman in a note to clients; however, he cited some challenges to the acquisition including limited distribution synergies and the company's struggles in rationalizing its soup business.

Campbell Soup said that Bolthouse Farms will push the soups giant into the fast growing $12-billion market for packaged fresh foods such as carrot salads, while also scaling its leading juices platforms. With Bolthouse Farms braded juices and its existing brands like V8, Campbell Soup expects that its juice revenues will draw in $1.2 billion in annual sales.

"Bolthouse is a great strategic fit with Campbell. Its business platforms, capabilities and culture are well aligned with the core growth strategies we announced last year," said Campbell Soup chief executive Denise Morrison in a Monday statement. Morrison also highlighted opportunities that Bolthouse provides for an expansion into packaged fresh foods businesses, which have strong growth trends.

While Campbell Soup has now decided to deploy its capital for acquisitions over stock repurchases, spokesperson Anthony Sanzio says that M&A and external development have been a part of the company's strategy for the past year.

Campbell Soup shares fell nearly 1% in Monday trading to $32.72. Year-to-date the company's shares are off over 1% and they are down over 4% in the last 12 months, underperforming the Dow Jones Industrial Average.

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