Diamond Foods Replaces CEO, CFO

Company restates earnings after investigation of payments to walnut growers.

Diamond Foods Inc. will restate earnings for the past two years and replace its top two executives after the board found the company booked payments to walnut growers in the wrong periods. The shares plunged.

The restatement may imperil Diamond’s planned, stock-based acquisition of the Pringles potato chip brand from Procter & Gamble Co., which has said the sale depended on the favorable resolution of the investigation.

P&G finds the results of the probe “very disappointing,” Paul Fox, a spokesman, said today in an interview. The unit has attracted “considerable interest” from other potential buyers and the company will keep all of its options open, he said.

“I don’t think P&G wants to stick its shareholders with a stock that is uncertain like Diamond,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York, said in an interview.

Diamond, the seller of Emerald snack nuts and Pop Secret popcorn, plunged 43 percent to $20.92 at 5:12 p.m. in New York. The shares dropped 39 percent last year.

Director Rick Wolford will serve as CEO, and Alix Partners LP’s Michael Murphy will be CFO while the company searches for permanent replacements, San Francisco-based Diamond said today in a statement. The board has put former CEO Michael J. Mendes and former CFO Steven M. Neil on administrative leave. Robert Zollars, previously the board’s lead independent director, will become chairman.

The three-month investigation, since taken up by the U.S. Securities and Exchange Commission, concluded that about $20 million in “continuity” payments made to walnut growers in August 2010 and about $60 million in “momentum” payments in September 2011 weren’t accounted for in the correct periods, Diamond said. The board also identified material weaknesses in the company’s financial reporting controls.

Diamond agreed to buy Pringles in April for about $1.5 billion, giving P&G shareholders 57 percent of Diamond, to more than double U.S. and U.K. snack sales. P&G was seeking to get rid of the brand, which sells in more than 140 countries, to focus on its home and personal-care business.

Mendes expanded Diamond with the $190 million acquisition of Pop Secret in 2008 and the $615 million purchase of Kettle chips in 2010.

Diamond said in November that the probe would delay the Pringles deal and disclosed in December that the SEC started investigation as well.

 

Bloomberg News

 

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