Campbell Soup CEO vows he won’t change Rao’s recipe after $2.7 billion acquisition

Campbell Soup (CPB) CEO Mark Clouse has no plans to mess with the legendary Rao's jarred pasta sauce recipe.

"We're not going to touch the sauce," Clouse emphatically told Yahoo Finance Live (video above), when asked to address some social media uproar over Campbell's upcoming ownership of Rao's. "We are not going to change it."

Clouse pointed out that the iconic Campbell's chicken noodle soup recipe has been relatively unchanged since its launch. He added that, in buying Rao's jarred sauce, Campbell isn't spending billions of dollars to destroy a beloved consumer product.

"We’ve been pretty consistent for 125 years with a pretty darn good chicken noodle soup that we guard with our lives to make that quality stays the same," Clouse said. "We’re going to protect that [Rao's recipe], as we should."

The king of chicken noodle soup said on Monday it would pay $2.7 billion — or $23 a share — to acquire Rao's pasta sauce maker Sovos Brands. The purchase price represented a 27% premium to Sovos Brands' closing price last Friday.

The Sovos deal marks Campbell's largest acquisition since former CEO Denise Morrison plunked down $4.87 billion to buy pretzel leader Snyder's-Lance in 2018. It's the first big deal for Clouse as CEO of Campbell Soup.

Rao's parent company, which went public in 2021, will join a Campbell sauce portfolio that consists of the lower-priced Prego pasta sauce and Swanson broths. The company posted $878.4 million in net sales last year and $67.8 million in net income.

This year, Wall Street was expecting Sovos Brands to post net sales and net income of $941.4 million and $75 million, respectively.

Campbell's expects the deal to close in December of this year and then be accretive to earnings. The company sees the potential for $50 million in cost savings over the two years after the deal closes.

Clouse has floated the idea of selling Sovos Brands' higher-end yogurt business Noosa, as he views it as "non-core."

But by and large, Clouse told Yahoo Finance Live the deal is about growth. Campbell's is eyeing greater distribution of Rao's sauces and a push into the frozen section with new products.

"We think these two businesses fit well together," JPMorgan analyst Ken Goldman said in a client note.

"First, at the risk of over-simplification, the transaction merges pasta sauce with pasta sauce; it’s not difficult to envision longer-term synergies from such a move (though Campbell played down initial synergies from sauces, as it wants to somewhat leave Rao’s alone to start)," Goldman explained.

"And second, Campbell isn’t the first company to buy growth in the packaged food space; Mondelez has made a habit of high-growth M&A recently, for example, to its benefit," the analyst continued. "Over time, if the Sovos deal works as expected, investors won’t necessarily remember that it was announced as industry volumes were decelerating."

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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