Question: In 2012 the Campbell Soup Company acquired Bolthouse Farms for
In 2012, the Campbell Soup Company acquired Bolthouse Farms for $ 1.55 billion. This acquisition increased the level of vertical integration in Campbell, as Bolthouse Farms owned and operated extensive farming operations where it produced many food items used in Campbell’s products. Suppose that the value of produce provided by these farms after the acquisition would be $ 75 million per year for Campbell and that, in addition, Campbell could save $ 10 million per year in costs it would otherwise spend in searching for and negotiating over equivalent produce. However, the transaction cost of the acquisition (lawyers’ fees, relocating some production facilities, paying severance to unnecessary employees, etc.) required a one- time payment of $ 50 million. If the interest rate used to discount future earnings is 5%, what is the gain to Campbell’s from the acquisition?
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