|The Pringles deal may not go through for Diamond Foods.|
NEW YORK ( TheStreet) -- Procter & Gamble ( PG) is expected to "walk away from the
Pringles deal," a KeyBanc Capital Markets analyst said in light of Diamond Foods ( DMND) announcement Wednesday that it needs to restate its financials for the last two years because of accounting problems. Diamond Foods announced last April it would acquire Pringles, but the deal has been held up by an internal audit at the company caused by accounting issues with some crop payments to walnut growers. The company also is being investigated by the Securities and Exchange Commission and the Justice Department.
"Needless to say, the market is assuming that the Pringles deal does not go through," KeyBanc Capital Markets analysts Akshay Jagdale said in a report on Thursday. The Pringles transaction was valued at $2.35 billion. Procter & Gamble spokesman Paul Fox said Wednesday of the Pringles deal with Diamond Foods: "We're keeping all options open." If Diamond Foods owned Pringles for all of fiscal 2011, the combined company would have had net sales of about $2.4 billion and estimated earnings before interest, taxes, depreciation and amortization of between $398 million and $410 million, according to Diamond Foods. "We assume the Pringles deal will be called off now, leaving DMND liable for a $60 million breakup fee to P&G," Jefferies analysts wrote in a report Thursday. Jagdale maintained his hold rating on the stock. "As for fair value, we believe DMND is worth $44 excluding Pringles in a break-up scenario based on our sum-of-the-parts valuation and worth $33 excluding Pringles, Walnut and Other Nuts," Jagdale wrote in a report. Looking ahead, one of Diamond Foods' biggest issues the effect its restatements will have on the company. "A complicating factor is that the restatements will most likely lead to DMND tripping its debt covenant, which would force the Company to renegotiate at most likely a higher interest rate," Jagdale said. "We believe the stock will trade well below what we consider is fair value until the financial statements are restated, the Company finds a permanent replacement for the interim CEO and CFO positions, and the debt covenants are renegotiated." Diamond Foods announced Wednesday that CEO Michael Mendes and Chief Financial Officer Steven Neil were placed on administrative leave. Former Del Monte Foods CEO Rick Wolford was named acting president and CEO of Diamond Foods and Alix Partners Managing Director Michael Murphy was named acting financial chief. Shares of Diamond Foods fell 36% trading Thursday to $27.70 on heavy volume. -- Written by Alexandra Zendrian >To contact the writer of this article, click here: Alexandra Zendrian >To submit a news tip, send an email to: email@example.com. >To follow the writer on Twitter, go to Alexandra Zendrian.