Kellogg Grabs Pringles For $2.7B, Diamond Foods Loses Out

Procter & Gamble will sell its Pringles product line to cereal-maker Kellogg for $2.7 billion, prompting Kellogg shares to rise Wednesday. P&G was virtually unchanged.

�Kellogg shares similar values and principles to us,� P&G Chairman and CEO Bob McDonald said a news release, �and we are confident that the Pringles business will thrive under Kellogg�s leadership.�

Kellogg decided to purchase Pringles to complement its growing snacks division, which already include Keebler, Cheez-it, and Special K crackers.

The acquisition more than doubles Kellogg snacks� presence abroad, Citi analyst David Driscoll wrote in a note to investors. �Moreover, the deal provides a platform for Kellogg to further grow its snacking business globally through leveraging the scale and capabilities of the Pringles franchise, which should drive future revenue synergies for the combined businesses and enhance growth,� Driscoll wrote.

The two companies expects to finish the deal by this summer. All told, it could mean an after-tax gain between $1.4 and $1.5 billion for P&G or 47 to 50 cents per share.

This is about equal to what P&G would�ve gained from its deal with Diamond Foods. In April last year, Diamond Foods and P&G agreed to a $1.7 billion deal for Pringles, but the deal fell through after an accounting scandal hit Diamond Foods. P&G and Diamond Foods officially called off the deal Wednesday.

For Kellogg, the deal is expected to dilute its 2012 EPS between 11 and 16 cents and generate one-time costs between $160 and $180 million. Most of these costs will impact the company this year, and to a less extent, the next two years, Kellogg said.

The global snacks market has seen considerable change in the past year. Kraft spun off its snacks division, which includes Oreo, Cadbury, Milka, Tang, and Trident, from its North American grocery business last August to take advantage of emerging markets growth. It expects to have the plan completed by the end of this year. Meanwhile, PepsiCo CEO Indra Nooyi has been criticized for trying to move the company toward healthy snacks, like Quaker granola bars and baked Frito-Lays potato chips, and away from its soda lines. Some anaylsts have suggested she divest Pepsi�s snack line. To satisfy critics and turn the company around, Nooyi has embarked on an ambitious multi-year plan that includes 8,700 job cuts.

Kellogg closed at $52.84, 5.1% increase, and P&G was at $64.55, a 0.1% increase, in early morning trading. Diamond Foods was up 5.2% at $23.46.