NEW YORK (AP) — Troubled snack food maker Diamond Foods Inc. and Procter & Gamble Co. have called off their $1.5 billion deal for Diamond to buy the Pringles brand. Cereal maker Kellogg Co. is swooping in and made a $2.7 billion deal to purchase the brand.
Diamond Foods, which makes Emerald Nuts and Pop Secret popcorn, and Procter & Gamble said Wednesday that they mutually agreed to end their proposed deal.
With Diamond out of the picture, the Pringles brand is headed to Kellogg. The company said the transaction will help to strengthen its snacks business, which it is trying to make as big globally as its cereal business. Kellogg's snack brands include Keebler, Cheez-It and Special K Cracker Chips.
"Pringles has an extensive global footprint that catapults Kellogg to the number two position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company," Kellogg President and CEO John Bryant said in a statement.
Diamond's stock gained $1.10, or 4.9 percent, to $23.40 in premarket trading, while Procter & Gamble's stock dipped 16 cents to $64.32. Kellogg's stock added $2.15, or 4.3 percent, to $52.45.
Speculation had been growing that Diamond's proposed acquisition of Pringles was in trouble, particularly after the San Francisco company announced a week ago that it was replacing its CEO and CFO following an internal investigation that found that the Diamond improperly accounted for payments to walnut growers. The company now needs to restate two years of financial results.
After those announcements, Diamond's stock slid, which hurt its ability to finance the Pringles' deal.
Diamond Foods' proposed buyout of Pringles was worth $1.5 billion when it was announced in April. It would have been the company's biggest acquisition ever and made it the second-largest snack maker in the nation behind PepsiCo Inc.
Last week, Cincinnati-based Procter & Gamble said it was evaluating the deal and keeping all options open, even stating that Pringles had "attracted considerable interest from other outside parties."
No breakup or other fees will be paid tied to the Diamond deal. Industry experts had believed that Diamond would possibly have to pay a $60 million breakup fee to Procter & Gamble and potentially up to $6 million in related costs.
Kellogg will pay Procter & Gamble $2.7 billion in cash. The company said that its outstanding debt will like increase by about $2 billion and that it will limit buybacks to proceeds received by the company from employee option exercises for about two years to allow the company to reduce its debt.
Kellogg expects to complete the Pringles acquisition during the summer, possibly on June 30.
If the deal closes around that time, Kellogg anticipates that the acquisition will add about 8 cents to 10 cents per share to its 2012 earnings before accounting for the acquisition and one-time costs and changes to its buyback program.