Pringles, an anomaly in a Procter & Gamble portfolio that spans categories as diverse as batteries and fabric conditioner, was always going to be sold. The questions surrounded when and to whom.
Diamond Foods, the US snack firm behind upmarket crisp brand Kettle, had already been linked to Pringles. Reports last autumn said the company had tried to move for Pringles but failed to strike a deal that appealed to P&G.
Seven months on, however, and Diamond is set to be Pringles’ new owner after last week agreeing a US$2.35bn deal.
The mechanics of the agreement are complex. P&G will spin off Pringles, “distribute” the business to participating shareholders and – at the same time – the spun-off entity will merge with Diamond.
The way the deal is structured – Diamond has put up $1.5bn of its own stock as well as assuming $850m of Pringles debt – gives P&G investors the opportunity to exchange shares in the Duracell and Bold maker for the shares put forward by the snack group. Once the deal is complete, P&G shareholders are expected to take a 57% stake in the combined business; Diamond’s investors will have the remaining 43%.
Whatever the detail of the deal, Diamond believes Pringles will bring some added sparkle to operations that were already enjoying some impressive growth. Diamond’s snack sales in the US and the UK, for instance, will double. In fact, the combination with Pringles will mean 49% of Diamond’s will be outside the US.
Analysts welcomed the deal, one labelling Diamond’s move for Pringles as “transformative”. Of course, there will be risks around integration and the transaction means Diamond will be in even closer competition with PepsiCo, the snacks giant behind brands like Doritos. However, Diamond’s scale and international presence will grow and the deal could boost the profile of its existing brands.
Nevertheless, the announcement led some to wonder whether Diamond, at the forefront of the consolidation of the global snacks sector over the last 12 months, could, in fact, be a target for other larger food multinationals (think Campbell Soup Co., General Mills or Kellogg) that want to take a bigger bite out of the industry.
Another US food company looking to expand its presence in international markets is pork processor Smithfield Foods. Last week, the company said it was in talks to take a majority stake in Campofrio Food Group, Europe’s largest processed meats firm.
Smithfield already owns a 37% stake in Campofrio but revealed it was in negoiations with Pedro Ballve, the Spanish company’s chairman, over a possible joint bid. A successful offer will take Smithfield’s in Campofrio to 87.6%.
Smithfield president and CEO Larry Pope said the company’s long-term strategy was to become a “leading global consumer packaged meats company”.
However, sections of Smithfield’s investor base could be sniffy about the company wanting to invest in a business that sees the bulk of its sales come from western European markets, which is hardly the most dynamic of regions at the moment. Campofrio’s annual sales rose by only 0.4% in 2010.
However, should Smithfield become Campofrio’s majority shareholder, it will increase its focus on added-value packaged meats and reduce the portion of its business from hog production.