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Issue Date: Vol. 52, No. 3, March 2012, Posted On: 2/14/2012

Diamond Foods Accounting Shakeup Threatens Pringles Deal

Emily Jed
Pringles acquisition, snack food industry, Pringles deal, Diamond Foods Inc., Pringles, Procter & Gamble, snack business, Michael Mendes, Steven Neil, Rick Wolford, Michael Murphy, Alix Partners

SAN FRANCISCO -- Diamond Foods Inc. said it is replacing its chief executive and chief financial officers and restating its earnings for the past two years after an internal investigation found payments to walnut growers had been booked in the wrong periods.

The news could threaten Diamond Foods's plans to acquire Pringles from Procter & Gamble Co. The deal was valued at $1.5 billion when it was announced last April. P&G had previously said the sale depended on a favorable resolution of the accounting probe. The acquisition would position Diamond Foods as the second-largest snack maker in the nation, behind PepsiCo Inc.

Diamond Foods, which makes Kettle Chips, Emerald Nuts and Pop Secret popcorn, said its audit committee found that the payments in question -- an estimated $20 million in 2010 and $60 million in 2011 -- skewed the company's financial results.

Diamond Foods said it has placed CEO Michael Mendes and CFO Steven Neil on administrative leave and that it is looking for permanent replacements. In the interim, Rick Wolford, a Diamond Foods director and former chief executive of Del Monte Foods, is serving as interim chief executive. Michael Murphy of Alix Partners is acting CFO.

Cincinnati-based P&G said it is evaluating its next steps and keeping all its options open."Pringles remains a valuable asset, and it has attracted considerable interest from other outside parties," P&G said in a statement.

Diamond Foods said it takes the integrity of its financial statements seriously and is working to complete the restatements as soon as possible.

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