Delay of Pringles Sale Has Minimal Impact on P&G’s Stock Value
Procter & Gamble (NYSE:PG) recently announced a delay in the $2.35 billion sale of its Pringles division to U.S. nut and popcorn maker Diamond Foods (NYSE: DMND). The sale unexpectedly hit a snag when Diamond announced an internal investigation into the accounting practices for particular crop payments to walnut growers [1]. Previously scheduled for December 2011, the sale is now set for June of 2012. With this deal, P&G will be out of the food business, but this delay means the company will still have to operate in the market while undergoing its planned restructuring.
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Impact on P&G
The sale of Pringles marks the final part of P&G’s exit from the food business. Over the past decade, P&G has been shifting focus to high-growth, high-margin personal care brands with the acquisition of companies such as Clairol and Gillette and the divestiture of Jif, Crisco, Sunny D and most recently, Folgers. [2] Trefis estimates that Pringles contributes less than 1% of P&G’s stock price, so it certainly makes sense to exit the business and focus on the higher-growth lines. Though the deal is mostly stock-based, the gain on the sale would have offset any restructuring costs in the company’s earnings reports over the next few quarters. P&G has stated that the restructuring will not be affected by the delay.
Increased focus on household lines
According to Trefis estimates, detergents and household cleaning supplies constitute the largest portion (21.9%) of P&G’s stock price. Even a modest increase in P&G’s detergent market share would have a significant impact on the stock value.
The current Trefis price estimate for P&G’s stock is $67, a 5% premium over the market price.
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Notes:- P&G delays $1.5B sale of Pringles to Diamond Foods, Dayton Business Journal, Nov 2011 [↩]
- Diamond Buy P&G’s Pringles, Wall Street Journal, April 2011 [↩]