GuruFocus Premium Membership

Serving Intelligent Investors Since 2004

Try It 100% FREE for 7 Days!

Free 7-day Trial
All Articles and Columns »

Diamond Foods CEO & CFO Removed; Stock Freefalls

February 08, 2012 | About:
The Science of Hitting

The Science of Hitting

In April of last year, Procter & Gamble (PG) announced that they were selling Pringles, the chips brand, for $1.5 billion to Diamond Foods (DMND) in exchange for $1.5 billion in stock via a “Reverse Morris Trust” transaction. At the time, the deal was big news for DMND: As a result, the company would more than double its sales in key regions like the U.S. and the UK, and would become the second-largest snack foods company in the world behind PepsiCo (PEP). After the announcement, the stock climbed 12% to more than $60 per share; in the coming months, it would continue to climb, and peaked above $90 per share in September.

Fast forward to today, and the story has taken a dramatic turn for the worse. On November 1, the company announced that the acquisition would be delayed due to an investigation into potential concerns regarding accounting of crop payments to walnut growers; at that point, the stock fell from $64 to $52, a collapse of nearly 20%.

Today, the results became apparent: The company had wrongly accounted for the payments to walnut growers, and will need to restate their financial statements for the past two fiscal years. In addition, Michael J. Mendes, chairman, president and CEO, and Steven M. Neil, CFO, were both put on administrative leave; negotiations about their severance and board seats are ongoing (clearly they should be dismissed without a penny in severance).

According to the Wall Street Journal article (which notes the opinion of someone familiar with the matters), Procter & Gamble is “highly unlikely” to complete the sale as a result of these new revelations, and will likely search for a new buyer.

As a result of this news, shares plunged even further; at the time of writing, the stock was trading in the after-hours market around $20.75 per share, a drop of more than 40% from Thursday’s close. Since peaking around $90 per share in September, shares have fallen more than 75%.

  • CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
  • Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
  • Double Buys:: Companies that both Gurus and Insiders are buying
  • Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.

» Take a Free Trial of Premium Membership

About the author:

The Science of Hitting
I'm a value investor, with a focus on patience; I look to buy great companies that are suffering from short term issues, and hope to load up when these opportunities present themselves (potentially over a period of years). As this would suggest, I run a fairly concentrated portfolio by most standards, usually with 8-10 names; from the perspective of a businessman rather than a market participant / stock trader, I believe this is more than sufficient diversification.

I hope to own a collection of great businesses; to ever sell one, I would demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over many years.

Rating: 4.3/5 (12 votes)


Please leave your comment:

Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial