Investor cries foul on Sovos sale to Campbell

LOUISVILLE — An individual investor in Sovos Brands Inc. (Nasdaq: SOVO) is suing the company and a group of its leaders, alleging violations of the Colorado Securities Act that occurred during the food-brand umbrella company’s $2.7 billion sale to Campbell Soup Co. (NYSE: CPB).

In a complaint filed this week in Boulder County District Court, investor Eric Maglione charges Campbell, Sovos, its executives, directors and financial advisers with “dissemination of false and/or misleading statements to Sovos investors,” which set the stage for Campbell’s to pay less per Sovos share than the company is worth.

Food and soup giant Campbell agreed in August to absorb Sovos and add it to its beverages division.

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Louisville-based Sovos, which moved to Colorado from California several years ago and controls Rao’s pasta sauce, Noosa Yoghurt and Michael Angelo’s frozen entrées, was valued at a bit more than $1 billion when it launched its initial public offering in 2021.

“This acquisition fits perfectly with and accelerates our strategy of focusing on one geography, two divisions and select key categories that we know well. Our focused strategy has enabled us to deliver strong results over the past five years, enhance our brands and capabilities, and generate strong cash flow to lower debt,” Campbell CEO Mark Clouse said in a prepared statement last month. “With all this progress, I am confident in our readiness to execute and integrate this important acquisition. The Sovos Brands portfolio strengthens and diversifies our meals and beverages division and paired with our faster-growing and differentiated Snacks division, makes Campbell one of the most dependable, growth-oriented names in food.”

The acquisition, expected to close in December, may result in the elimination of some redundant administrative operations at Sovos’ Louisville headquarters and the offloading of the Bellvue-based Noosa Yoghurt brand. 

“While yogurt is not core to our strategy, we are excited that (Noosa) is performing very well with great products and strong profitability,” Clouse said in a conference call last month.

Strong performance from Noosa allows Campbell “to be patient while we evaluate strategic alternatives,” he said. One such alternative could be jettisoning the brand from Campbell’s meals and beverages division.

Campbell, according to its chief financial officer Carrie Anderson, expects the absorption of Sovos to result in the elimination of $50 million in annual redundant costs over the next two years, much of which could to be cleaved from Sovos’ administrative operations, which, of course, are headquartered in Boulder County. 

“Our plan is to continue to build on (Sovo’s) incredible momentum, maintain its high quality standards and retain members of its talented team,” Clouse said. The specific local impact of the deal remains unknown.

Maglione’s lawsuit alleges that the sale to Campbell is “unfair to plaintiff and Sovos’s other public investors because the sale price of $23 per share is less than the intrinsic value of the company’s stock, which Sovos’s own financial adviser, Goldman Sachs, determined to be as much as $29.81 per share. Given Goldman Sachs’ valuation, Sovos’s investors will receive over 22% less for their shares than the shares intrinsic value and will be deprived of more than $294 million in value collectively.”

A major beneficiary of the acquisition, the lawsuit claims, is Advent International Corp., a private equity firm that holds more than 40% of Sovos’ shares.

“Advent is driving the sale in order to monetize its substantial stake — worth almost $1 billion — in the company, which it would be unable to do profitably in open market transactions without depressing the value of its interest,” the lawsuit claims.

Financial advisers Goldman Sachs & Co. LLC and Centerview Partners LLC, the complaint alleges, also had incentive to sign off on the sale.

“Goldman Sachs will receive a $27.4 million fee only if the sale closes and will receive no compensation if it does not while Centerview will receive a $7 million fee only if the sale closes and just $2 million if it does not,” the lawsuit said. “This gives Goldman Sachs and Centerview incentives of $27.4 million and $5 million, respectively, to issue favorable ‘fairness opinions’ because without such opinions, a transaction typically could not be consummated, in which event they would not receive their outsized fees.”

In addition to Sovos and Campbell, defendants in the lawsuit include Sovos CEO Todd Lachman; Advent current and former employees Jefferson Case, William Johnson, Neha Mathur and David Roberts; and Sovos directors Tamer Abuaita, Valarie Sheppard and Vijayanthimala Singh.

Campbell and Sovos representatives did not respond to requests for comment Friday.

Sovos and its financial advisers “negotiated a sale of the company with only Campbell and failed to reach out to other buyers who could have paid more for the company,” the lawsuit claims. “Compounding that failure, the individual defendants also caused the company to agree to pay Campbell a $71.3 million termination fee if Sovos’s investors disapproved the sale or if the company was sold to another buyer for a higher price, thereby deterring other bidders.”

A sale to Campbell’s, or any other buyer, for that matter, is unnecessary, Maglione’s complaint argued. 

“Since the company’s 2021 IPO, (Sovos) has performed extremely well and has recorded double-digit organic sales growth,” the lawsuit said. “… Sovos’s future as a standalone public company is also bright.”

The lawsuit is Maglione v. Sovos et al, case: 2023CV30681, filed Sept. 20, 2023, in Boulder County District Court.