Diamond Foods, Inc. and The Procter & Gamble Company announced the signing of a definitive agreement to merge the Pringles business into Diamond Foods in a transaction valued at $2.35 billion.
According to P&G, Pringles is the world's largest potato crisp brand with sales in over 140 countries and manufacturing operations in the U.S., Europe, and Asia. The brand has been built over 45 years with a combination of proprietary products, unique package design and significant advertising investment. Pringles will join Diamond's portfolio of brands, which includes Diamond of California and Emerald nuts, Pop Secret microwave popcorn and Kettle Brand potato chips, creating a premium snack-focused company with total revenues of approximately $2.4 billion.
The combination will more than triple the size of Diamond's snack business and:
- increase scale in U.S. grocery, mass merchandise, drug and convenience channels to gain greater merchandising and distribution influence;
- leverage Diamond's sales and distribution infrastructure through a more than doubling of snack sales in the U.S. and U.K. – Pringles' two largest markets;
- gain a broader global manufacturing and supply chain platform, with access into key growth markets around the world, including Asia, Latin America and Central Europe;
- increase Diamond's geographic diversity, with international sales accounting for approximately 49 percent of total revenues on a pro forma basis.
P&G expects the separation to occur through a "split-off" transaction in which P&G shareholders can elect to participate in an exchange offer to exchange P&G shares for shares of Diamond. Under the terms of a split-merge agreement, P&G will establish a separate entity to hold the Pringles business, which will be distributed to electing P&G shareholders in a tax-efficient transaction with a simultaneous merger with Diamond. This "Reverse Morris Trust" transaction has been approved by the boards of both companies. The value of the transaction is $2.35 billion, comprising $1.5 billion in Diamond common stock, consisting of 29.1 million shares for approximately 57 percent of the outstanding shares of the combined company, and the assumption of $850 million of Pringles debt. Diamond's existing shareholders would continue to own approximately 43 percent of the combined company.
The parties have also agreed to a collar mechanism that would adjust the amount of debt assumed by Diamond based upon Diamond's stock price during a trading period prior to the commencement of the Exchange Offer. The amount of debt to be assumed by Diamond could increase by up to $200 million or decrease by up to $150 million based on this adjustment mechanism. Diamond expects to incur one-time costs of approximately $100 million related to the transaction over the next two years. P&G also will provide Diamond transition services for up to 12 months after closing.
The combined business will be managed by Diamond's executive team and board of directors, led by Michael J. Mendes, Chairman, President and CEO. The company's headquarters will remain in San Francisco, California.
The transaction is subject to approval by Diamond shareholders and the satisfaction of customary closing conditions and regulatory approvals. The transaction is expected to be completed by the end of calendar 2011.
More information and access to a recording of the April 5 conference call is available at P&G.