It took nearly seven months for Diamond Foods to convince Procter & Gamble to let go of its Pringles potato chip brand. The deal, which will be executed through a Reverse Morris Trust, values Pringles at $2.35 billion, including $850 million of existing debt.

P&G reportedly abondoned talks last year August after it took a closer look at the structure of the deal. Reportedly, Diamond approached P&G with the Reverse Morris Trust trust transaction that was similar to past P&G sales of peanut butter brand Jif and its cooking oil Crisco to J.M. Smucker. According to published reports, P&G would have been able to sell Pringles tax-free while simultaneously giving its shareholders majority control of Diamond.  

Today’s announced agreement includes $1.5 billion in Diamond common stock, which consists of 29.1 million shares for approximately 57% of the outstanding shares of the combined company. Diamond’s existing shareholders will hold on to 43% of the combined company.

According to the press release, the deal will result in a one-time earnings increase for P&G of roughly $1.5 billion after tax or nearly $.50 per share. P&G expects modest earnings per share dilution of $0.02 to $0.04 on an annualized basis.

A collar mechanism was also included in the deal, which could see the $850 million debt could increase up to $200 million or decrease to $150 million, depending on the movement of Diamond's stock ahead of the exchange offer.


Diamond, which recently acquired chipmaker Kettle Brands, expects the deal to increase cash flow and speed up the de-leveraging of its balance sheet. Cash flow after brand investments and capital expenses is expected to reach $200 million in the first full fiscal year after the merger closes, hopefully by the end of 2011.

The new addition is expected to be immediately accretive to Diamonds earnings for fiscal year 2012. With $25 million in synergies and Ebitda ranging from $398 million to $410 million, Diamond will creep into the No. 2 slot within the global snack category.

In addition to its Kettle acquisition, a $615 million deal with Lion Capital, Diamond also added General Mills' Pop Secret popcorn brand in 2008.

P&G will support Diamond for 12 months to help with transitioning efforts. The business will be led by Michael Mendes who is the chairman, president and CEO of Diamond Foods. 

Morgan Stanley is providing financial advice to P&G and is using Jones Day as its legal counsel with Robert Profusek and Randi Lesnick as the the lead.

Bank of America Merrill Lynch is acting as Diamond’s financial advisor. Fenwick & West provided legal advice with Douglas Cogen and David Michaels as the lead attorneys.

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