Kellogg will buy Pringles in a $2.7 billion all-cash transaction that 's expected to close this summer.
In a Cincinnati press conference, P&G Chairman-CEO Bob McDonald said his company had agreed with Diamond to end the deal with no breakup fee. Analysts had believed P&G could have difficulty finding another player to pay cash for Pringles at a level that would yield an after-tax gain similar to the Diamond deal, which would have been treated as a tax-free spinoff to create a new company owned by P&G shareholders. But Pringles has been doing well, according to people familiar with the matter. It earned substantial bonuses for managers, who will apparently be headed to Kellogg with 1,700 other employees.
WPP's Grey Global Group leads agencies on the business. The roster include siblings Possible Worldwide for digital and Mediacom for communications planning. Publicis Groupe 's Starcom MediaVest Group handles media buying.
Mr. McDonald said Pringles, with global sales estimated at $1.4 billion, will become Kellogg 's second-largest global brand, behind Special K.
P&G looks at more than financials for divestitures, Mr. McDonald. It also considers the buyer's purpose and culture. Kellogg brands have worked extensively with P&G's Vocalpoint buzz-marketing program, which enlists moms to spread the word about brands."Pringles was our last food business, and in that sense it was an orphan," Mr. McDonald said. "Pringles in many ways was more a receiver of P&G ideas and technology than a giver. It's a great business though, and it's going to be a great business for the Kellogg Co."
P&G originally agreed to the deal with Diamond in April. But an inquiry involving timing of payments to walnut growers and their effect on 2010 and 2011 earnings has sent Diamond's share price plummeting since November. Last week, CEO Michael Mendes and Chief Financial Officer Steve Neil resigned.
The acquisition will add a major brand to Kellogg 's snack portfolio, which includes Keebler, Cheez-It and Special K Cracker Chips."Pringles has an extensive global footprint that catapults Kellogg to the No. 2 position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company," Kellogg President-CEO John Bryant said in a statement.
Advertising for mot Kellogg brands is handled by Leo Burnett.
Investor firm Bernstein Research said in an investor note that the deal "makes strategic sense for Kellogg " and would boost its "relatively underdeveloped" overseas snacking business. "Pringles is a strong snacking brand which is a good fit with Kellogg 's snacks business both at home and abroad. We had been worried that if Diamond owned Pringles it would be an unprotected orphan brand overseas," the analyst group said.
The deal marks another setback for Diamond, which was on the brink of becoming a global snacks powerhouse."Diamond has enjoyed a positive and constructive working relationship with P&G throughout this process, and the mutual termination of our agreement and release of all associated liabilities was reached in the same spirit," Rick Wolford, Diamond Foods' acting president and CEO, said in a statement. "Diamond now will put its full effort on the growth of our business with focused execution to continue to build our successful brands." Those include Emerald nuts, Pop Secret popcorn and Kettle potato chips.
Contributing: E.J. Schultz