Bloomberg News

Diamond Gets SEC Probe Notice Amid Walnut Investigation

December 16, 2011

(Updates with closing stock price in fourth paragraph.)

Dec. 15 (Bloomberg) -- Diamond Foods Inc., conducting an internal probe into whether money paid to walnut growers violated accounting rules, said the U.S. Securities and Exchange Commission began an investigation into the snack maker.

The SEC’s probe isn’t an indication that the company has broken the law, Diamond said in a filing today. San Francisco- based Diamond said it will cooperate with the investigation and didn’t provide further details. The shares fell.

Diamond last month said the internal probe would delay its purchase of Pringles potato chips from Procter & Gamble Co. in a deal valued at $2.35 billion. The shares surged 53 percent on Dec. 9 after an analyst at KeyBanc Capital Markets said the investigation will conclude quickly and won’t jeopardize the acquisition.

The SEC investigation “adds more overhang to the stock,” Ed Aaron, an analyst at RBC Capital Markets, said in a note to clients today. “If Procter keeps the deal on hold until the SEC review is complete, it could further delay the completion of the merger,” said Aaron, who is based in Denver and rates the shares “sector perform.”

Diamond fell 5.6 percent to $27.87 at the close in New York. The shares have slumped 57 percent since Nov. 1, when Diamond said the purchase of Pringles would be delayed. The decline includes a 23 percent plunge on Dec. 12 after the Wall Street Journal reported that farmers questioned explanations of payments.

Double Sales

“Our commitment to this transaction is predicated on the favorable resolution of all these current investigations,” Paul Fox, a Procter & Gamble spokesman, said in an e-mail.

John Christiansen, an external spokesman for Diamond at Sard Verbinnen & Co., didn’t immediately respond to an e-mail and phone call seeking comment.

The audit committee may conclude the investigation by the middle of February, Diamond said Dec. 12. As a result, the company delayed filing its Form 10-Q for the fiscal first quarter.

The Pringles deal would double Diamond’s annual sales to $2.4 billion. Diamond had planned to assume $850 million in debt from Pringles, and that may rise by as much as $200 million depending on the stock price, Diamond said when the deal was announced on April 5. The shares closed at $61.06 that day. Diamond had planned to complete the transaction by the end of the year, and postponed it to June 2012.

On Nov. 23, Diamond shares tumbled after CNBC reported that company director Joseph Silveira committed suicide Nov. 15. Silveira had served on the audit committee and recused himself from its investigation. He was 64.

--With assistance from Lauren Coleman-Lochner in New York. Editors: James Callan, Cecile Daurat, Kevin Orland

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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