P&G rejected merging Pringles, Diamond: Sources

Procter & Gamble (P&G) was in talks to merge its Pringles unit with Diamond Foods Inc before halting negotiations last month on concerns regarding the deal’s structure, people with direct knowledge of the discussions said.

P&G’s board voted against a transaction in August, said sources who declined to be identified. A deal would have valued Pringles at about $1.5 billion. Diamond has a market value of about $900 million.

A merger would have added Pringles chips to Diamond snacks that include Emerald nuts and Pop Secret popcorn. The San Francisco-based company also owns Kettle potato chips — with flavours such as Spicy Thai and New York Cheddar — after buying Kettle Foods for $615 million in cash earlier this year. Diamond spent months in talks to acquire Pringles in a so-called spin merger that would have allowed P&G to sell in a tax- free manner while giving its shareholders majority control of Diamond, according to sources.

Such a maneuver is also called a Reverse Morris trust, the same structure P&G used when it sold Jif peanut butter and Crisco cooking oil to JM Smucker Co in 2002.

Don Tassone, a spokesman for the Cincinnati-based P&G, declined to comment. Diamond doesn’t comment on speculation, said Jon Murchinson, a spokesman for the company.

Diamond fell 16 cents to $41.50 at 4 pm on the Nasdaq stock market. The shares have climbed 17 per cent this year. Procter & Gamble, up less than one per cent this year, dropped 14 cents to $60.97 on New York stock exchange composite trading.