Diamond Foods Inc. (DMND)’s decline after a report that director Joseph Silveira committed suicide may further complicate its proposed deal to buy the Pringles snack brand from Procter & Gamble Co. (PG)
Silveira, who died Nov. 15, had served on the audit committee and recused himself from its investigation of payments to walnut growers. Diamond said on Nov. 1 that the probe would delay the acquisition of Pringles in a deal valued at $2.35 billion.
P&G shareholders have to exchange some shares for Diamond stock as part of the agreement, and that may now be a harder sell, said Louis Meyer, a special-situations analyst for Oscar Gruss & Son Inc. in New York. Diamond’s decline also may force it to assume more debt to complete the takeover, Meyer said.
“How do you incentivize P&G shareholders, who are used to a nice, stable stock, to take stock in a company that’s had a real eventful history in their stock price?” Meyer said. “Unless P&G is absolutely desperate to get rid of the Pringles line, they may have to go to Plan B and find another buyer if Diamond can’t complete the deal.”
Diamond doesn’t comment on speculation, said Paul Kranhold, a spokesman for the company. Jennifer Chelune, a spokeswoman for P&G didn’t respond to requests for comment.
Diamond Foods, based in San Francisco, slumped 21 percent to $27.80 at the close in New York for the largest decline since Dec. 4, 2008. The shares have slid 48 percent this year. P&G, based in Cincinnati, fell 1 percent to $61.06.
Diamond tumbled in late trading yesterday after CNBC reported that Silveira committed suicide. He was 64, according to an obituary on the Modesto Bee newspaper’s website.
The coroner’s office in Stanislaus County, California, referred questions about the matter to the Turlock Police Department. Turlock Detective Frank Navarro would say only that Silveira died on Nov. 15 and that other details are being held, pending an investigation.
“Joe served Diamond shareholders as a director with dignity and dedication for many years,” Kranhold said earlier in an e-mailed statement. “Any suggestion that his passing was somehow related to the accounting investigation by people seeking to profit by spreading such unfounded rumors is demeaning to his legacy.”
The Pringles deal would double Diamond’s annual sales to more than $2 billion. Diamond had planned to assume $850 million in debt from Pringles, and that could increase by as much as $200 million depending on the stock price, Diamond said when the deal was announced in April. Diamond shares traded at about $57 then. Diamond had planned to complete the transaction by the end of the year, and postponed it to June 2012.
Investors were betting against 53 percent of Diamond Foods’ shares available for trading as of Oct. 31, according to data compiled by Bloomberg. Only four out of 1,964 companies in the Russell 2000 Index had a higher level of short selling, which involves the sale of stock in the hope of profiting by purchasing it later at a lower price.
“Until the company announces the outcome of its investigation, and we have a clearer picture of the future of the pending Pringles acquisition, the pressure on the stock is likely to continue,” Thilo Wrede, an analyst for Jefferies Group Inc. in New York, wrote today in a note. He maintained a “buy” rating on the shares.
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