Diamond Foods Rises On Einhorn Reports

Published January 18, 2012 7:36PM (EST)

NEW YORK (AP) — Shares of Diamond Foods Inc. gained more than 4 percent on Wednesday on reports that hedge fund manager David Einhorn may have closed his short positions on the food company.

THE SPARK: Various media reported that Einhorn's firm, Greenlight Capital Inc., sent a letter to investors on Tuesday saying that it closed its short position on Diamond Foods, maker of Emerald Nuts and Pop Secret popcorn. Closing its short on a stock means the firm is no longer betting against the company.

A representative for Einhorn and Greenlight Capital declined to comment Wednesday.

Two other large shareholders also recently sold most of their stock in the company.

THE BACKGROUND: Less than three weeks ago, speculation arose that Einhorn had acquired a stake in Diamond Foods, and its stock rose. Einhorn and Greenlight would not comment at the time.

On Friday Diamond Foods came under some pressure after a published report of a federal inquiry into whether the snack maker's accounting for crop payments to walnut growers amounted to criminal fraud.

The controversy over the accounting for the payments began last year and has delayed Diamond's acquisition of the Pringles chip brand from Procter & Gamble Co. In April, when Diamond made the offer, the deal was worth $1.5 billion and would have been Diamond's biggest ever. But Diamond's stock was worth about $60 then and its drop has lessened the value of the cash and stock deal.

The deal would make Diamond a distant second to the nation's largest snack maker, PepsiCo Inc.

STOCK ACTION: Shares of Diamond Foods, which is based in San Francisco, added $1.24, or 4.1 percent, to $31.24 in afternoon trading. Over the past year, the stock has traded between $26.11 and $96.13.

By Salon Staff

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