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February 9, 2012 6:55 PM

Gibson, Dunn Takes Role Amid Diamond Foods Accounting Scandal That May Doom Pringles Deal

Posted by Tom Huddleston Jr.

Procter & Gamble said Wednesday it is reevaluating a planned $2.35 billion sale of its Pringles business to Diamond Foods in the wake of an accounting scandal and related financial restatements at the latter company. 

Last year, Diamond—whose brands include Pop Secret popcorn and Emerald nuts—said it would acquire the Pringles unit with a combination of assumed debt and $1.5 billion in stock. The close of the deal was delayed last year amid an internal Diamond investigation into the company's prior financial statements.

On Wednesday, Diamond announced that the inquiry had uncovered about $80 million in payments to walnut growers during 2010 and 2011 that were booked in the incorrect periods. Diamond said it is taking several corrective actions based on that finding and is working with the SEC to submit restated financial data. The company also fired chief executive Michael Mendes and chief financial officer Steven Neil.

Diamond said in November that it had retained Gibson, Dunn & Crutcher to advise the audit committee conducting an internal probe.

P&G called the accounting revelations "very disappointing." Pringles is a valuable asset that attracted interest from other potential buyers, the company said. "We need to evaluate next steps and we are currently keeping all our options open," the consumer products giant said in a statement.

When the Pringles deal was announced last year, P&G said it would split off the unit to merge with Diamond. In turn, Diamond would issue about $1.5 billion worth of its stock to acquire Pringles. Diamond's shares have been plummeting since September, when The Wall Street Journal first questioned the company's accounting for payments made to walnut growers. 

As The Am Law Daily reported last April, Fenwick & West was advising Diamond on the acquisition of Pringles, while Jones Day was representing P&G.

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