Cereal maker Kellogg Co. (K) said Wednesday it has agreed to buy Procter & Gamble Co.'s (PG) Pringles snack business for $2.695 billion in cash. The deal comes as P&G and snack maker Diamond Foods Inc. (DMND) said they have mutually agreed to terminate Diamond's proposed $2.35 billion acquisition of the Pringles brand.
P&G and Diamond Foods said that they have released each other from all liabilities related to the proposed deal that was reached in April 2011, and will not pay any "break up" or other fees in connection with the termination. The companies decided to terminate the deal as it got delayed due to an accounting scandal at Diamond Foods.
Diamond Foods said in early February that it replaced its CEO Michael Mendes and CFO Steven Neil after an internal probe found that the company improperly accounted for payments to walnut growers.
Meanwhile, Kellogg noted that the deal to acquire Pringles will significantly advance its goal of building a global snacks business on par with its global cereal business.
Kellogg and P&G expect to complete the deal in summer of 2012. Kellogg said it expects its outstanding debt to increase by about $2 billion, and as a result, intends to limit its share repurchase program.
Kellogg said its financial performance in 2012 will depend on several factors, including the exact date of closing of the deal.
Assuming the transaction closes by June 30, 2012, Kellogg expects that the transaction will add to its 2012 earnings by between $0.08 and $0.10 per share before transaction costs as well as changes to the share repurchase program. Including these items, the company expects the transaction will be dilutive to earnings by between $0.11 and $0.16 per share.
Separately, P&G said it expects an after-tax gain on the transaction of $1.4 billion to $1.5 billion, or about $0.47 to $0.50 per share. The company noted that the gain is about the same as was estimated at the time of the initiation of the original transaction with Diamond Foods in April 2011.
P&G also updated its financial guidance for fiscal year 2012. The company said the earnings per share for the fiscal year will be dependent on the timing of the completion of the transaction.
Excluding the gain from the transaction, the company projects earnings in a range of $3.30 to $3.43 per share.
If the Pringles sale is completed within the current fiscal year, P&G expects earnings per share in a range of $3.77 to $3.93, including a one time gain of $0.47 to $0.50 per share.
P&G's prior fiscal year guidance for earnings of $3.85 to $4.08 per share included an estimated one-time gain of $0.55 to $0.65 per share from the Snacks transaction with Diamond Foods.
PG closed Tuesday's trading at $64.48. In Wednesday's pre-market, the stock is adding $0.02 or 0.03 percent to $64.50.
K closed trading at $50.30,up $0.28 on a volume of 2.25 million shares. In Wednesday's trading, the stock is adding $1.70 or 3.38 percent to $52.00.
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