Campbell Soup’s activist fight going down to the wire over 2 nominees

The concern with Toler, Campbell said in a statement last week, arises from his work at Campbell, where he was employed between 1995 and 2000, according to LinkedIn. After Campbell, Toler worked at Pinnacle Foods and was CEO of Hostess Brands from 2014 through March of this year. Third Point has mentioned Toler as a potential stand-in for the interim CEO role at Campbell.

“With regard to Mr. Toler, we are very familiar with him due to his period of employment with the Company and concluded that he would not be an appropriate director,” Campbell said.

Toler was mentioned, though not a named party, in a 2001 class-action lawsuit against Campbell and senior executives that stemmed from Campbell’s alleged “channel stuffing,” the practice of sending retailers more products than they need, in order to inflate its sales figures.

Channel stuffing is not infrequent but can become an issue if it becomes flagrant, according to a number of people in the industry who spoke to CNBC, some on the condition of anonymity. It was more common years ago.

According to the 2001 lawsuit, the plaintiffs alleged that Campbell offered retailers discounts on its soup cans of 15 percent to 20 percent, rather than the typical 2 percent to 3 percent, to spur orders. Toler, head of marketing at that time according to the suit, was accused of holding “frequent and sometimes daily conference calls” to discuss and authorize the alleged discounts. The suit said Toler did so to meet revenue targets his superiors gave to him in order to meet analyst estimates. Campbell settled the lawsuit in 2003 for $35 million and did not admit any wrongdoing.

Facts behind the litigation are part of the reason Campbell believes Toler is not appropriate for its board, a person familiar with the matter told CNBC. The person requested anonymity due to the sensitivities around the issue.

When asked about the lawsuit, Campbell spokesman Thomas Hushen told CNBC that it does not comment on personnel matters as a policy.

In a statement provided to CNBC, Third Point spokeswoman Elissa Doyle said the lengths to which its opponents “will go to rebuff Third Point’s highly-qualified board nominees are once again on display in today’s sad attempt to use a shareholder strike suit filed 18 years ago in which Mr. Toler is not a named party.”

Doyle added that if Campbell were to use the litigation to support its conclusion it would be “either hypocritical or merely illogical” since “key decision-makers also named in the case or in supervisory roles” continued on as officers and directors at the company after the suit.

Corporate governance experts who spoke to CNBC said the lawsuit is not inherently problematic due to the frequency of such securities class-action lawsuits and the uncertainty regarding the reality or severity of Toler’s role in the alleged actions.

They added, though, it is something that Third Point should have known about and been prepared to address. Proxy fights are high stakes — each side looks for flaws in the other party’s slate. Third Point brought Toler into the limelight when it put his name forward to act as Campbell’s interim CEO.

If Third Point didn’t know, said Lawrence Cunningham, a professor at George Washington University, “someone’s going to be upset over on the Loeb side.”

Third Point spokeswoman Doyle told CNBC in a statement the firm does “deep background research on all of our nominees and agreed with the conclusions of boards at Hostess, Pinnacle, and others who selected Bill to run their companies that an 18-year-old plaintiff strike suit against the Company (not Bill) is wholly irrelevant to his ability to brilliantly operate [a consumer packaged goods] business, create value for shareholders and, most importantly, provide structure and accountability to a management team at Campbell’s that, in their own words, has ‘lost focus.'”

Campbell, meantime, has accused Third Point of being unprepared in its fight after it has backed away from its initial calls for a sale and echoed Campbell’s own sentiments following its strategic review, in addition to reducing the number of directors it is seeking.

Third Point had previously said the only justifiable outcome of the company’s review this summer was a sale to a strategic buyer. Third Point later said it would also accept other moves for Campbell, including a breakup.

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