Business Combinations and Asset Acquisitions

9 Months Ended

Apr. 28, 2024

Business Combination and Asset Acquisition [Abstract]

On August 7, 2023, we entered into a merger agreement to acquire Sovos Brands, Inc. (Sovos Brands) for $23.00 per share. On March 12, 2024, we completed the acquisition. Sovos Brands' portfolio includes a variety of pasta sauces, dry pasta, soups, frozen entrées, frozen pizza and yogurts, all of which are sold in North America under the brand names Rao’s, Michael Angelo’s and noosa. Total purchase consideration was $2.899 billion, which was determined as follows:


(Millions)
Cash consideration paid to Sovos Brands shareholders(1)	$	2,307
Cash paid for share-based awards(2)	32
Cash consideration paid directly to shareholders	$	2,339
Cash paid for transaction costs of Sovos Brands	32
Repayment of Sovos Brands existing indebtedness and accrued interest	486
Total cash consideration	$	2,857
Fair value of replacement share-based awards(3)	42
Total consideration	$	2,899

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(1) Consideration paid to Sovos Brands shareholders which reflects $23.00 per share.

(2) Represents cash paid to equity award holders of Sovos Brands restricted stock and restricted stock unit awards attributable to pre-combination service. This excludes $3 million of cash paid that was recognized as expense.

(3) We issued replacement equity awards in settlement of certain Sovos Brands equity awards that did not become vested in connection with the acquisition. The portion of fair value of the replacement awards attributable to pre-combination service was $42 million and is included in the purchase consideration. We recognized $26 million of expense related to accelerated vesting of certain replacement awards.

The cash portion of the acquisition was funded through a Delayed Draw Term Loan Credit Agreement (the 2024 DDTL Credit Agreement) of $2 billion and cash on hand. See Note 11 for additional information.

The table below presents the fair value that was allocated to acquired assets and assumed liabilities:


(Millions)	Estimated Fair Value
Cash	$	240
Accounts receivable	96
Inventories	130
Other current assets	5
Plant assets	102

Other intangible assets	1,785
Other assets	16
Total assets acquired	$	2,374
Accounts payable	$	96
Accrued liabilities	56
Accrued income taxes	1
Long-term debt	9
Deferred taxes	412
Other liabilities	11
Total liabilities assumed	$	585
Net assets acquired	$	1,789
Goodwill	1,110
Total consideration	$	2,899

The excess of the purchase price over the estimated fair values of identifiable net assets was recorded as $1.11 billion of goodwill. The goodwill is not deductible for tax purposes. The goodwill was primarily attributable to future growth opportunities, anticipated synergies, and intangible assets that did not qualify for separate recognition. The goodwill is included in the Meals & Beverages segment.

The purchase price allocation of Sovos Brands is preliminary and is subject to the finalization of certain items, including valuations and tax balances, which will be completed within the allowable measurement period.

The identifiable intangible assets of Sovos Brands consist of:


(Millions)	Type	Life in Years			Value
Trademarks	Non-amortizable	Indefinite			$	1,470
Trademarks	Amortizable	20			83
Customer relationships	Amortizable	20	to	30	232
Total identifiable intangible assets					$	1,785

As of April 28, 2024, Sovos Brands amortizable intangible assets had a weighted-average remaining useful life of 27 years.

We incurred transaction costs and integration costs, including costs to achieve synergies, of $95 million and $114 million associated with the Sovos Brands acquisition in the three- and nine-month periods ended April 28, 2024, respectively. Approximately $16 million in the three-month period and $35 million in the nine-month period represented transaction costs, including outside advisory costs, recorded in Other expenses / (income). In the three-month period ended April 28, 2024, we recognized $2 million in Interest expense related to financing fees associated with the 2024 DDTL Credit Agreement. Integration costs included expenses associated with accelerated vesting of replacement awards, severance and retention bonuses, amortization of the acquisition date fair value adjustment to inventories and other costs. Integration costs recognized in the three-month period ended April 28, 2024 included the following:

•$18 million in Costs of products sold, $17 million of which related to the amortization of the acquisition date fair value adjustment to inventories;

•$2 million of Marketing and selling expenses;

•$39 million of Administrative expenses;

•$2 million of Research and development expenses; and

•$16 million of Restructuring charges to achieve synergies. See Note 7 for additional information.

For the period March 12, 2024 through April 28, 2024, the Sovos Brands acquisition contributed $166 million to Net sales and a loss of $75 million to Net earnings, including the effect of transaction and integration costs and interest expense on the debt to finance the acquisition.

The following unaudited summary information is presented on a consolidated pro forma basis as if the Sovos Brands acquisition had occurred on August 1, 2022:


	Three Months Ended				Nine Months Ended
(Millions)	April 28, 2024		April 30, 2023		April 28, 2024		April 30, 2023

Net sales	$	2,510	$	2,472	$	8,061	$	8,023
Net earnings attributable to Campbell Soup Company	$	184	$	141	$	595	$	532

The pro forma results are not necessarily indicative of the combined results had the Sovos Brands acquisition been completed on August 1, 2022, nor are they indicative of future combined results. The pro forma amounts include adjustments to interest expense for financing the acquisition, to amortization and depreciation expense based on the estimated fair value and useful lives of intangible assets and plant assets, and related tax effects. The pro forma results include adjustments to reflect amortization of the acquisition date fair value adjustment to inventories, expenses related to accelerated vesting of replacement awards and severance and retention bonuses as of August 1, 2022.