Will Rao's Thrive After Acquisition by Campbell's?

This week, Campbell's announced the $2.7 billion acquisition of Sovos Brands, a firm whose most famous and successful brand is Rao's.  If you aren't familiar with the brand, you should be.  It's simply the very best tomato sauce sold in the United States, and frankly, there shouldn't even be a moment of debate.  I should know.  As the son of Italian immigrants, I grew up never eating tomato sauce from a jar. We had a huge vegetable garden, and my parents grew tomatoes and made their own sauce. Still today, I grow my own tomatoes and store sauce for the winter, though I don't jar enough to last the entire year. When I have to purchase sauce, there's only one brand that I will purchase in a jar - Rao's marinara sauce. As a fan of the brand, I'm hardly alone. Ben Cohen of the Wall Street Journal writes, "Rao’s deliciousness is undeniable. Bon Appétit magazine called it “the best jarred pasta sauce there ever was.” When the Washington Post convened a panel of taste-testers, the judges tried a dozen brands and declared Rao’s their favorite."   Rao's is hardly a bargain though.  It's a premium brand.  A 32 ounce jar of Rao's currently sells for $10.29 at Stop & Shop.  You can purchase a 24 ounce jar of Ragu for $1.99.   Now you might think that I'm crazy to pay that kind of a premium for tomato sauce, but you would be wrong.  It's absolutely worth it! 

The Campbell's acquisition may be beneficial, but it understandably generates some concern.  Campbell's is known for selling a very affordable line of soups.  How will the premium brand Rao's fare within the Campbell's portfolio?  The company's track record of acquisitions is decidedly mixed.  In the late 1960s, it acquired Godiva's chocolates.  That brand thrived under Campbell's ownership for many years, but ultimately, the company divested Godiva because it didn't fit very well with the other products in the portfolio.  More recently, the company divested Bolthouse Farms at a steep discount to the price they had acquired the brand for just seven years earlier.  

The question remains whether valuable synergies exist between Campbell's and Rao's.  Why are these firms more valuable together than apart?  Can Campbell's manage the brand more successfully than it has already been managed?  That seems unlikely, given the parent company's lack of recent familiarity and success with super premium brands.  Moreover, they aren't buying a brand in distress; they are purchasing a brand that is already performing at a very high level.

Any attempt to drive synergies must be taken with caution as it may dilute the quality of the premium tomato sauce brand. For now, Campbell's has assured customers and investors that it won't change the taste and quality of the popular tomato sauce. Still,  we should expect some pressure to justify the acquisition premium by creating synergies.  That pressure can be counterproductive at times when mainstream companies acquire much more premium brands.