Why Italian Sauce Maker Sovos Brands' Stock Is Soaring Today

Campbell Soup Company CPB has agreed to acquire Sovos Brands Inc SOVO for $23 per share in cash, representing a total enterprise value of approximately $2.7 billion. 

The deal price represents a premium of over 27% to SOVO's last closing price of $18.02 on August 4, 2023.

The deal aids Campbell's $1 billion sauces strategic objective by filling in critical white space in the growing Italian sauce category, a segment where Campbell's does not currently compete.

The deal strengthens and diversifies Campbell's portfolio by enhancing Meals & Beverages division with additional growth-oriented brands, including premium flagship Rao's brand to complement core, mainstream portfolio and provide runway for adjacent category expansion.

Sovos Brands had annual adjusted net sales of $837 million in 2022.

Rao's brand, which represented about 69% of Sovos Brands adjusted net sales in fiscal 2022, grew organic net sales by 34.9% compared to the prior year.

"This acquisition fits perfectly with and accelerates our strategy of focusing on one geography, two divisions and select key categories that we know well," said Campbell's President and CEO Mark Clouse.

The transaction is expected to be accretive to adjusted earnings per share by the second year, excluding one-time integration expenses and costs to achieve synergies.

The deal is expected to close by the end of December 2023, after which Sovos Brands' results will be managed within Campbell's Meals & Beverage division.  

Campbell plans to finance the acquisition price through the issuance of new debt. It held $223 million in cash and equivalents as of April 30, 2023.

Price Action: SOVO shares are trading higher by 25% at $22.53 in premarket on the last check Monday.