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February 17, 2012 6:23 PM

Dealmaker of the Week: Benjamin Roth of Wachtell, Lipton, Rosen & Katz

Posted by Tom Huddleston Jr.

Benjamin Roth

DEALMAKER

Benjamin Roth, 35, a corporate partner in the New York office of Wachtell, Lipton, Rosen & Katz.

THE CLIENT

Kellogg Co., the Battle Creek, Michigan–based maker of such popular grocery items as Corn Flakes, Cheez-It crackers, Pop-Tarts, and Keebler cookies.

THE DEAL

Kellogg agreed Wednesday to pay $2.7 billion to acquire the Pringles unit of household products giant Procter & Gamble.

THE DETAILS

Kellogg and P&G announced their agreement one week after P&G announced that it was reevaluating the planned sale of the Pringles division to Diamond Foods for $2.35 billion amid an accounting scandal involving Diamond's financial statements for the past two years. Kellogg will assume about $2 billion in debt as part of the transaction and finance the rest with cash. Kellogg expects the deal to close by the end of June and to generate savings of $10 million in 2012, more the following year, and as much as $75 million annually in subsequent years.

THE BIG PICTURE

Diamond fired its CEO and CFO last week and has seen its stock price plummet after an internal probe turned up $80 million in payments to walnut growers during 2010 and 2011 that had been incorrectly reported, thereby inflating Diamond's revenue figures for those two years. The company is in the process of restating its financial reports and is cooperating with investigations by the Securities and Exchange Commission and the U.S. Department of Justice. As The New York Time's Peter Henning noted Tuesday, Diamond could still face civil enforcement action as a result of the improper accounting.

The turmoil at Diamond allowed it and P&G to invoke a material adverse change clause in their original agreement that resulted in a termination that involved no breakup fees and paved the way for Kellogg to make a play on a unit it reportedly bid for for last year. Kellogg, which signed its agreement with P&G within days of the termination of the Diamond deal, has said that it plans to take advantage of Pringles's global footprint to increase the overseas presence of its own savory snack products—which include Cheez-It crackers and certain Keebler products.

Most of Kellogg's revenue comes from within North America, while Pringles's stacked potato crisps are sold in more than 140 countries. Two-thirds of the $1.5 billion in annual revenue generated by Pringles comes from outside the United States, according to the Associated Press.

THE BACKSTORY

Wachtell's relationship with Kellogg goes back more than a decade. Daniel Neff, the cochair of the firm's executive committee, advised the company on its largest acquisition ever: the $3.86 billion purchase of Keebler Foods in 2000.

The Pringles acquisition marks the first time that Roth—who has been with the firm for about a decade and made partner 2009—has worked with Kellogg. Roth says he has been working closely with Neff on recent transactions in other industries, including representing packaging maker Temple-Inland on its $3.7 billion sale to International Paper Company last fall. Given Neff's history with Kellogg, the two collaborated on this deal as well, Roth says.

"We just have a good working relationship so we teamed up on this one," Roth says.

ON CLOSING

P&G announced on February 8 that it was reevaluating its deal with Diamond due to that company's accounting troubles, and Kellogg moved quickly to establish itself as Pringles's top suitor. Within a week, P&G's deal with Diamond was terminated and Kellogg found itself on the verge of gobbling up a snack business with global appeal.

The transaction is "just a straight cash deal," which made the process of putting together an agreement fairly standard, Roth says. Still, it is also a carve-out transaction—where the Pringles unit must be cut away from P&G in order to be sold—which Roth says is always challenging. The narrow time frame, he adds, did not help.

Given the need for a quick turnaround, a team led by Roth and Neff seemed like the right choice. Roth counts Neff as one of his mentors and adds that the time they have spent together allows them to work in a complimentary manner. "It's a normal mentor-mentee relationship, kind of," Roth says. "I was down in the trenches and Dan, while he goes in the trenches also, he operates at the high level."

As sometimes happens in such relationships between legal dealmakers, the affinity between the two has allowed Roth to build on Neff's long-standing ties to Kellogg to establishing himself as another Wachtell partner the client can turn to in the future. Says Roth: "That's definitely [Neff's] relationship that I'm proud to call my own now."

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