Kellog Buys Pringles For $2.7 Billion As Diamond Foods Deal Falls Apart

Proctor & Gamble

announced today that it is selling its Pringles chip brand to Kellog

for $2.7 billion after a previous deal with Diamond Foods

fell apart amid an accounting scandal. The acquisition will help Kellog (

) increase its footprint in the snack business where it already owns brands such as Keebler and Cheez-It. Diamond Foods (

) originally had agreed to buy Pringles for $1.5 billion, but the two companies announced that the deal was off on Wednesday. Diamond announced the results of a prolonged internal accounting investigation last week which showed that the company had improperly accounted for certain payments it made to walnut growers. Diamond will have to restate two years of financial results. The investigation resulted in the ouster of the company's CEO and CFO and has crushed DMND's stock price which has lost 67% in the last six months. The successful acquisition of Pringles would have made Diamond the country's second largest snack maker behind Pepsico

. Diamond currently owns brands such as Emerald Nuts and Pop Secret popcorn. The stock slide and management shakeup, however, doomed the deal which was expected to encounter financing difficulties in the wake of the turmoil. Kellog's acquisition of Pringles will help bolster the company's strong lineup of snacks and is expected to be accretive to its fiscal 2012 earnings. "Pringles has an extensive global footprint that catapults Kellogg to the number two position in the worldwide savory snacks category, helping us achieve our objective of becoming a truly global cereal and snacks company," Kellogg President and CEO John Bryant said in a statement. The deal is expected to add $2 billion in debt to Kellogg's balance sheet and roughly $0.08 to $0.10 in adjusted earnings per share for 2012. Proctor & Gamble (

) anticipates that the deal will give the company an after-tax gain of $1.4 billion to $1.5 billion or roughly $0.47 to $0.50 per share. The transaction is expected to close this summer. While Diamond's inability to go through with the Pringles acquisition is clearly another disappointment for shareholders, all of the effected stocks are moving higher on Wednesday. Proctor & Gamble shares have added 0.22% to $64.62 while Kellogg is up 5.39% to $53.01. Diamond's stock has surged 7% to $23.87 as investors react favorably to the new-found clarity surrounding the company. The resolution of DMND's accounting investigation, which will result in a restatement, and the subsequent ouster of the CEO and CFO along with the termination of the Pringles deal has, if nothing else, removed some of the uncertainty surrounding the stock.