Blog: Dean BestDiamond director death raises questions over Pringles deal

Dean Best | 25 November 2011

The tragic news that a director at Diamond Foods has raised questions over the US company's plan to buy global snacks brand Pringles.

There were immediate questions over whether the death of Joseph Silveira, a member of Diamond's audit committee, was linked to an investigation into the company's payment to walnut growers.

Diamond reportedly denied there was any connection between the two events but the news did lead to the company's share price plummeting. And the fall in Diamond's stock could put its plan to buy Pringles in jeopardy.

The company struck a $2.35bn deal to buy Pringles from Procter & Gamble in April. Under the terms of the deal - designed to minimise the tax impact on P&G shareholders - P&G will set up a separate entity for the Pringles business. The new Pringles entity will be "distributed" to P&G investors taking part in the transaction and - at the same time - the business will merge with Diamond.

The deal gives P&G investors the opportunity to exchange their shares for the stock put forward by Diamond. P&G shareholders are expected to take a 57% stake in the combined business, with existing Diamond investors accounting for the remaining 43%.

Diamond had expected the transaction to be completed by the end of the year but earlier this month it said the deal had been delayed by an investigation into how the company pays its walnut growers. The company said the probe meant completion of the acquisition would be pushed back until some time in the first six months of next year.

Some raised the question over whether there was a link between Silveira's death - said to be suicide - and the investigation because he is understood to have recused himself from the probe. However, Diamond has insisted there is no connection.

Nevertheless, the death of Silveira - and subsequent slump in Diamond's share price - has cast doubts over the company's acquistion of Pringles.

As Bloomberg reported this week, convincing P&G shareholders to exchange their stock in the company for Diamond's shares could be more difficult.

"How do you incentivize P&G shareholders, who are used to a nice, stable stock, to take stock in a company that's had a real eventful history in their stock price?" Louis Meyer, a special situations analyst at US broker Oscar Gruss & Son, said to Bloomberg. "Unless P&G is absolutely desperate to get rid of the Pringles line, they may have to go to Plan B and find another buyer if Diamond can't complete the deal."

The fall in Diamond's share price means the company might have to take on more debt to fund the acquisition of Pringles.

Diamond had been so full of positives over the potential of the Pringles deal. Right now, all the market can see is uncertainty over whether it will go through.


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