Once You Pop, the Fun Can Stop
Andrew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Poor, poor Diamond Foods (NASDAQ: DMND). It has been an especially tough several months for them. Diamond’s hard times started late last year with the apparent suicide of one of their long-time board members. A string of bad news followed, culminating with the release of Diamond’s CEO and CFO over their handling of an accounting error that resulted in Diamond Foods having to restate their financials. While all of this was going on Diamond was in the negotiations with Proctor & Gamble (NYSE: PG) to purchase their Pringles division.
That possibility of purchasing Pringles is now gone for Diamond. Like trans fats in many snack foods, Diamond Foods has been cut out for healthier options. That option comes in the form of Kellogg (NYSE: K). It was reported that PG and Diamond Foods have mutually agreed to end their acquisition agreement, allowing Kellogg, the manufacturer of such brands as Cheez-Its, Keebler and Special K, to move in and acquire the Pringles Brand. This move would put Kellogg as the number two producer of snack food products behind only PepsiCo. It was reported that the deal would be worth $2.7 billion, and would be financed mostly with debt by Kellogg. This price is a significant increase from the $2.35 billion that Diamond Foods had arranged.
Diamond investors appear to not be too distraught over this news. Shares of Diamond Foods are up almost 3% as of this writing. Kellogg investors appear to be more bullish on this deal; shares of Kellogg have increased by over 5% over the same period.
The loss of Pringles by Diamond Foods is a significant blow to their future earnings and revenue. The Pringles acquisition was expected to move Diamond’s annual revenue to around $2.5 billion, up significantly from the almost $1 billion it reported for fiscal year 2011. Diamond Foods needs to focus on the internal governance of their corporation before they look to expand though acquisitions. I fully expect that within a year, once Diamond has their financial house in order, they will make another push at purchasing another major snack brand.
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