In regard to recent events within the food and tobacco industry, the Wall Street Journal recently released a piece on Proctor and Gamble (P&G). According to this article, P&G is working to combine two of its divisions, Pringles with Diamond Foods, in order to create a more efficient structure for the company. However, as Jannarone points out, “ Old business problems won’t disappear.” Within this restructuring, investors will be able to trade their shares of Pringle for Diamond Foods, the company that is attempting to purchase Pringle. The catch, however, is that investors must trade in their stock to the point that 57% of the Pringle chip division will be owned by Diamond foods.
This shift to sell P&G’s only food division comes with a few major consequences for the industry as a whole. First of all, it would enable Diamond foods to become the second-largest snack distributor next to PepsiCo. This is while it would filly eliminate P&G from the food industry so that said company could solely focus on their home products.
Although this merger may have many positive aspects, this article points out the negative aspects to Diamond’s walnut business and aims to have P&G customers question the decision to trade in their stock. According to the WSJ, Diamond Foods has been paying growers of walnuts less than that of other companies, even though prices of this food item has continued to climb. Despite these low payments, the company has moved to provide growers with varied advance, or “moment” payments. Although said payments were implemented to help diamond’s growers, they could have been harmful to the company’s profits.
If this payment would have been made before the end of the company’s fiscal year, it could have hurt their overall profit. Along with this, increased pressure from the walnut growers has made the “Pringles deal all the more important for Diamond as a way to diversify away from walnuts, which account for nearly 30% of sales.”
In regard to the food and tobacco industry, it will be quite interesting to see if this buyout occurs. If it does, it will also be interesting to see Diamond’s effect on the food industry as a whole.
This blog post utilized the Wall Street Journal for information which can be found athttp://online.wsj.com/article/SB10001424052970204831304576595000985103090.html
Sorry, I am having trouble understanding this buy off. So how does this affect investors in regard to trading their stocks? What does the 57% mean?
ReplyDeleteWell, I think Corporate Social Responsibilities of fair payment to the walnut growers outweighs a short increase in profit. Do you know if P&G has a history of such infringement on CSR or just recently as to facilitate the buy out?