What's Next for Pringles?

Procter & Gamble (NYSE: PG  ) was hoping to sell off its Pringles snack chips and get out of the food business. But its April 2011 agreement with Diamond Foods (Nasdaq: DMND  ) appears to be off the table, according to a Bloomberg report, after Diamond announced the ouster of its CEO and CFO and a restatement of two years of earnings. This was the result of months of investigation from Diamond's board after some accounting irregularities were discovered with regards to payments to walnut growers.

If Diamond were able to complete the deal, it would triple revenues to around $2.4 billion a year, moving the company into the No. 2 slot in the snack business. If P&G is able to get out of the deal, however, it should be able to find a buyer for the popular brand, meeting or exceeding the $1.5 billion it was expected to receive from Diamond.

Other options abound
If P&G can put the Diamond deal behind it, others may step up to claim the Pringles prize. PepsiCo (NYSE: PEP  ) , owner of Frito-Lay, has complementary products, and Pringles would expand its already sizable lead in the snack food segment. It could potentially retire its Lay's Stax products and focus on the more recognizable Pringles brand instead.

Kraft Foods (NYSE: KFT  ) plans to spin off its snack business, giving it flexibility to possibly pursue other brands, whether it be Pringles or other snack brands held by Conagra Foods or similar companies. During 2010, Kraft's snacks segment accounted for just over $6 billion in the U.S. alone, a number that would place it second behind Frito-Lay. An acquisition of Pringles would expand Kraft's nuts and salty snacks segment, allowing it to diversify its product line.

What will happen?
Depending on the conditions of the original sale, Procter & Gamble may have some costs associated with canceling the Pringles deal with Diamond. If it does, it should be able to make up for any hit by finding another buyer for its tasty potato crisps. Keep an eye on future developments of this story by adding Procter & Gamble to My Watchlist.

Fool contributor Robert Eberhard holds no position in any company mentioned. Feel free to follow him on Twitter. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services have recommended buying shares of Procter & Gamble and PepsiCo, as well as creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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