Diamond Foods Inc. will restate earnings for the past two yearsand replace its top two executives after the board found thecompany booked payments to walnut growers in the wrong periods. Theshares plunged.

The restatement may imperil Diamond's planned, stock-basedacquisition of the Pringles potato chip brand from Procter &Gamble Co., which has said the sale depended on the favorableresolution of the investigation.

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

“I don't think P&G wants to stick its shareholders with astock that is uncertain like Diamond,” Ali Dibadj, an analyst atSanford C. Bernstein & Co. in New York, said in aninterview.

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

Director Rick Wolford will serve as CEO, and Alix Partners LP'sMichael Murphy will be CFO while the company searches for permanentreplacements, San Francisco-based Diamond said today in astatement. The board has put former CEO Michael J. Mendes andformer CFO Steven M. Neil on administrative leave. Robert Zollars,previously the board's lead independent director, will becomechairman.

The three-month investigation, since taken up by the U.S.Securities and Exchange Commission, concluded that about $20million in “continuity” payments made to walnut growers in August2010 and about $60 million in “momentum” payments in September 2011weren't accounted for in the correct periods, Diamond said. Theboard also identified material weaknesses in the company'sfinancial reporting controls.

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

Mendes expanded Diamond with the $190 million acquisition of PopSecret in 2008 and the $615 million purchase of Kettle chips in2010.

Diamond said in November that the probe would delay the Pringlesdeal and disclosed in December that the SEC started investigationas well.

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