Procter & Gamble (NYSE:PG) has been reasserting its commitment to conclude the $2.35 billion Pringles sale to Diamond Foods (NYSE:DMND) by June 2012 despite Diamond’s recent internal accounting investigations and tanking of its stock price. But since the deal also requires P&G shareholders to exchange some of their shares with Diamond shares (that have now lost 60% of their value last month despite high profile acquisitions), should P&G start to look for other buyers or revise its deal?
Deal Postponed Due to Diamond’s Accounting Investigations
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In April 2011, P&G agreed to the $2.35 billion Pringles sales deal with Diamond Foods that involves $1.5 billion in stock exchange and $850 million of debt assumption, to be concluded by the end of 2011. The deal marks the final part of P&G’s exit from the food business to shift focus on high-growth, high-margin personal care brands. It will also triple Diamond’s snack business giving it a broader manufacturing base and access to growth markets in Asia, Latin America and Central Europe, making it world’s second largest snack company after PepsiCo. Diamond originally planned to close the deal by the end of the year but had to postpone the date to June 2012 due to the accounting investigation regarding underpayments to walnut growers.
P&G Should Explore its Options
Even though P&G has repeatedly affirmed its commitment to complete the sale of Pringles to Diamond Foods by June 2012, it may consider a fresh search for buyers or revise its terms of agreement in light of the recent developments and plunging Diamond stock, that has lost 60% value last month. This can make the deal less lucrative to P&G stockholders, especially because the deal involves exchange of stocks. Deutsche Bank speculates a 20% probability that the deal might collapse while RiverPoint Capital puts the odds at a 50% high.
The current Trefis price estimate for P&G’s stock is $71.50, a 10% premium over the market price.