Pringles (P&G) to become part of Diamond Foods

Diamond Foods has a history of building, acquiring and energizing brands through product and package innovation, efficient distribution and brand investment.  The Company's total revenues have doubled and earnings per share (EPS) have grown more than four-fold in the past five years(Calculated using 2006 as base and mid-point of Diamond's guidance ranges for 2011).

Diamond of California brand has grown from a single product offering to a full line of culinary nuts over the past decade.
Today, Diamond is the category leader with a market share ten times larger than the nearest branded competitor (Nielsen U.S. Grocery 52 weeks ended February 19, 2011).
Emerald, which was launched in 2004, is the fastest growing and second largest brand in the snack nut category.

In 2008, the Company acquired and successfully integrated Pop Secret microwave popcorn, and by revitalizing the brand, Diamond has gained over 350 basis points of market share to 26 percent today (Nielsen U.S. Grocery 52 weeks ended February 19, 2011).

In 2010, the Company acquired Kettle Brand potato chips and has fueled double-digit organic growth in its first year of ownership while investing in new products and operational infrastructure.  

Financial Benefit for Diamond Foods Shareholders

Assuming Pringles had been owned for all of fiscal year 2011, the combined company would be expected to deliver the following estimated financial results on a pro forma basis for fiscal year 2011:

The transaction is expected to significantly increase cash flow and accelerate the de-levering of Diamond's balance sheet.  Pro forma leverage at closing is projected to be below four times EBITDA, and projected to drop below three times at the end of fiscal 2013.  Cash flow after brand investments and capital expenditures is expected to approach $200 million in the first full fiscal year after closing the merger.

Financial Value for P&G Shareholders

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 $0.50 per share.  P&G expects only modest EPS dilution of $0.02 to $0.04 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.

Transaction Details

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.  We expect to finalize the details of this transaction in the coming months.

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.

Leadership, Approvals and Timing

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.