Kellogg’s buys Procter & Gamble’s Pringles chips for $2.7 billion

This is what potato chip politics looks like: Upset with the internal struggles of Kettle owner Diamond Foods, Pringles is abandoning its would-be buyer and running off with Kellogg Co. instead.

Pringles, which is owned by Procter & Gamble and makes stacked potato crisps served out of a long canister, offered itself up to Kellogg’s for nearly $2.7 billion in cash.

The deal is expected to close this summer; Kellogg’s said it would welcome Pringles’ 1,700 employees. Two of Procter & Gamble’s manufacturing facilities – in Tennessee and Belgium – are also included in the deal.

Pringles, a brand that has been around for more than four decade and pulls in $1.5 billion in annual sales across more than 140 countries, is a strategic bet for Kellogg’s. The Michigan-based food giant is a strong player in the breakfast world, with brands such as Eggo, Froot Loops, Frosted Flakes and Raisin Bran.

But Pringles will help Kellogg’s, whose portfolio also includes Cheez-It, Pop-Tarts and Apple Jacks, challenge competitors such as Kraft in the snacks arena.

Meanwhile, Kellogg’s will offer Pringles a safe haven. Originally, in April, Procter & Gamble said it planned to sell the chips brand for $2.35 billion to Diamond Foods, whose holdings including Kettle chips and Diamond nuts.

The Pringles addition would have more than tripled the size of Stockton, Calif.-based Diamond’s snack business.

But then Procter & Gamble caught wind of troubles at Diamond, which said Feb. 8 that accounting mistakes would force the company to rework all of its financial statements from 2010 and 2011 as well as replace its chief executive and chief financial officer.

In a terse statement then, Procter & Gamble said the disclosure “is very disappointing. Pringles remains a valuable asset and it has attracted considerable interest from other outside parties. We need to evaluate next steps and we are currently keeping all our options open.”

The two companies then mutually agreed to part ways.

The Pringles deal Wednesday pushed Kellogg’s stock up more than 5% to $52.96 in midday trading in New York while advancing Procter & Gamble’s stock about a tenth of a percent to $64.56.

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