Procter & Gamble (
) reached an agreement to offload Pringles, the last foods brand in
its portfolio to Diamond Foods in a $1.5 billion stock transaction.
The deal is expected to close by the end of 2011 and is structured
to minimize the tax impact on P&G. PG is the largest
consumer goods company in the world, and traditionally competes
with companies like Colgate (
), Unilever Group (
), Revlon (
) across a wide product spectrum.
What Does this Mean for Procter & Gamble?
- Exiting the food business lets P&G focus exclusively on
high-growth and high-margin beauty and personal care brands.
P&G's divestures in foods include Jif and Crisco in 2002 for
$810 million, Sunny Delight in 2004 for an undisclosed amount and
recently Folgers in 2008 for $2.65 billion.
- With annual sales at around $1.2 billion, the spinoff hardly
creates a dent in P&G's robust portfolio with sales exceeding
$80 billion. The nature of the transaction reduces P&G's
outstanding debt and also does not come with a tax hit on capital
gains from the sale.
What Does this Mean for Diamond Foods?
- Pringles is a strategic fit in Diamond Foods' portfolio of
Emerald nuts along with the recently acquired Pop Secret popcorn
in 2008 for $190 million and Kettle chips in 2010 for $616
- In the largely fragmented snacks market, the acquisition of
Pringles triples Diamond Foods' sales to $2.4 billion, making it
the second largest player in the market led by PepsiCo's
- The acquisition gives Diamond Foods a broader manufacturing
base and supply chain stretching across the globe. Pringles brand
crisps are sold in over 140 countries across the globe, with
manufacturing operations in Europe and Asia. This gives Diamond
Foods instant access for distribution of its other brands.
So, while P&G had been out trying to shed its last standing
food brand, Diamond Foods had been out shopping for food brands to
gain scale. Hence, the strategic fit is obvious.
Why this Structure for the Transaction?
A crucial aspect of the deal is its structure, which minimizes
the tax burden on P&G shareholders. Pringles shall be split off
into a separate entity, which shall then be merged with Diamond
Foods. The new (combined) company will be led by Diamond Food's
Chief Executive Michael Mendes. P&G's shareholders will end up
owning 57% of the combined company while Diamond shareholders will
own the rest. The non-cash nature of sale ensures no taxation on
capital gains from the sale. Diamond Foods would assume the $850
million debt on Pringles and would also incur a one-time expense of
$100 million spread over the next two years related to the
See our complete analysis of Procter & Gamble's
Correction: P&G's shareholders that choose to elect to
participate in the exchange offer will swap their shares for
Diamond shares and will own part of the independent company that
will be split off from P&G. P&G holders that elect to
participate will end up owning 57% of the combined company while
current Diamond shareholders will own the remainder. For more info,