UPDATE: Kellogg To Buy P&G's Pringles, Stepping In For Diamond
February 15 2012 - 9:18AM
Dow Jones News
Kellogg Co. (K) agreed to buy Procter & Gamble Co.'s (PG)
Pringles business for $2.695 billion in cash, stepping in for
Diamond Foods Inc. (DMND), the troubled former suitor of the
canned-chips operation.
Diamond had agreed to pay $2.35 billion to buy the Pringles
business last April, but the parties said Wednesday that pact had
been terminated. The deal unraveled following an internal probe at
Diamond that found it had wrongly accounted for payments to walnut
growers.
The purchase heightens the importance of snacks to Kellogg's
overall business, bringing the category roughly up to par with
cereal, which accounts for a little over half of Kellogg's revenue.
Executives said the acquisition will also give the maker of Rice
Krispies and Pop Tarts a stronger foothold in markets such as the
Asia-Pacific region.
"We think it will be a great addition and a strong new platform
on which we can grow," Kellogg President and Chief Executive John
Bryant said on a conference call with analysts. "While Pringles
operates in many regions, we will look to expand these businesses
over time."
Kellogg predicted the Pringles purchase will cut its
current-year per-share earnings by 11 cents to 16 cents, including
costs tied to the deal and a planned reduction of its stock buyback
program. The company is lowering share repurchases because of the
issuance of $2 billion in debt to fund the deal.
Excluding costs and the impact of the lower buybacks, Kellogg
expects the deal to add roughly 8 cents to 10 cents a share to its
2012 full-year earnings.
Kellogg shares were up 3.4% at $52 in recent premarket trading.
Diamond rose 3.6% to $23.10 while P&G was up 2 cents at
$64.50.
P&G and Diamond said Wednesday that no break-up or other
fees will be paid in connection with the termination of their
deal.
The accounting issues at Diamond marked a stunning comedown for
the once-obscure walnut growers' cooperative, which under Chief
Executive Michael J. Mendes tried to become a force in the snacks
business through a series of acquisitions since 2005. Those efforts
peaked
"Diamond has enjoyed a positive and constructive working
relationship with P&G throughout this process, and the mutual
termination of our agreement and release of all associated
liabilities was reached in the same spirit," said Rick Wolford,
Diamond Foods' acting president and chief executive. "Diamond now
will put its full effort on the growth of our business with focused
execution to continue to build our successful brands."
Last week Diamond fired its chief executive and chief financial
officer and said it would restate financial results for two years
in light of the probe.
The Wall Street Journal reported last week that the results of
the probe--which was launched after the Journal raised accounting
questions in September--would be turned over to the U.S. Securities
and Exchange Commission and the San Francisco U.S. attorney's
office, which have been investigating Diamond and how it handled
the payments, citing a person familiar with the matter said.
The accounting controversy sprung out of California's walnut
groves, which once sold the bulk of their output to Diamond. But
the interests of growers and the company began to separate after
the company began to answer to public shareholders. Growers have
complained that Diamond, which sets walnut prices in secret and
pays for crops in a series of payments months after they are
delivered, began paying less than other buyers in recent years.
-By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240;
matthew.jarzemsky@dowjones.com
--Mia Lamar contributed to this story
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