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Nuts to soup

29 Nov 2011 By Jeffrey Goldfarb

Things aren’t sparkling for Diamond Foods. A month ago, the snack food maker delayed its $2.4 billion plan to buy Pringles from Procter & Gamble to look into accounting concerns. Now, the company is burying news about the probe and increasing payments to walnut-growing directors. These and other inconsistencies don’t seem to augur well for the investigation – or for P&G’s deal.

When the Pringles deal was hot, Diamond shares soared to over $90 apiece. They now trade at less than a third of that and value the transaction at less than P&G said it would accept during negotiations. Bringing in extra auditing and legal help, as Diamond has done, should help its internal committee move things along. But rather than disclose the hires when made earlier this month, Diamond waited until Monday and shoehorned them into a release underneath news about market share gains.

Diamond hasn’t been the model of clarity in other ways, either. The company published a condolence note for board and audit committee member Joseph Silveira on its website on Nov. 17. Only when news outlets later reported that Silveira had killed himself did the company say he had previously excluded himself from the investigation because of a conflict of interest.

Then there are Diamond’s walnut purchases. Some growers complained the company was severely undercutting rivals on price. That led to questions about the timing and accounting treatment of payments. Meanwhile, one Diamond director who is also a grower made more in just a few months of this fiscal year than he did in all of last and another is already 80 percent of the way there. Each also earned over 40 percent more last year than the year before. Diamond says they’re delivering more, but superficially the numbers don’t seem consistent with what other growers say.

The puzzlement extends back even further. When asked by Breakingviews in September about a so-called momentum payment to growers, the company said the period to which it applied was “somewhat of a blur.” Just a week later, it was able to tell regulators definitively the payment was for fiscal year 2012.

Diamond’s internal investigation may clear the fog, send the shares back up and restart the company’s global expansion. Just in case, though, P&G, which said on Nov. 1 it was committed to the deal with Diamond, may want to pop a plan B for Pringles.


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