Snacks & Candy

Diamond Buys P&G's Pringles

Deal creates No. 2 global player in savory snack category
SAN FRANCISCO & CINCINNATI -- Diamond Foods Inc. and The Procter & Gamble Co. have announced the signing of a definitive "split-merge" agreement to merge the Pringles business into Diamond Foods in a transaction valued at $2.35 billion.

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 combined business will be managed by Diamond's executive team and [image-nocss] board of directors, led by Michael J. Mendes, chairman, president and CEO. The company's headquarters will remain in San Francisco.

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.

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., which are 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% of total revenues on a pro forma basis.

The tax-efficient deal structure maximizes value for P&G shareholders and minimizes annual earnings dilution. The transaction will result in a one-time earnings increase for P&G of approximately $1.5 billion after tax or approximately 50 cents per share. P&G expects only modest EPS dilution of two to four cents on an annualized basis. The stock exchange with Diamond will reduce outstanding P&G shares, partially offsetting the Pringles earnings impact. Updated financial impacts will be provided when the transaction is completed.

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% 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% 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.

"Pringles is an iconic, billion dollar snack brand with significant global manufacturing and supply-chain infrastructure," said Michael J. Mendes, chairman, president and CEO of Diamond Foods. "Our plan is to build upon the brand equity Pringles has established in over 140 countries. This strategic combination will create an independent, global leader in the snack industry with a focus on quality and innovative products. Not only is this combination immediately accretive, it also creates a platform that we believe will allow us to build shareholder value for years to come."

Pringles is the world's largest potato crisp brand with sales in more than 140 countries and manufacturing operations in the United States, Europe and Asia. The global, iconic brand has been built over 45 years with a combination of proprietary products, unique package design and significant advertising investment.

Cincinnati-based P&G's brand portfolio includes Pampers, Tide, Ariel, Always, Whisper, Pantene, Mach3, Bounty, Dawn, Gain, Charmin, Downy, Lenor, Iams, Pringles, Crest, Oral-B, Duracell, Olay, Head & Shoulders, Wella, Gillette, Braun and Fusion.

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