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How Does Pringles Deal Taste to PG Investors?

April 06, 2011 – by Richard Band

On the M&A front, Procter & Gamble (NYSE: PG) announced Tuesday that it will sell its Pringles potato-chip business to Diamond Foods (NASDAQ: DMND) in a deal valued at $2.35 billion. And so ends P&G’s business in the food business.

So should this leave a good or bad taste in the mouths’ of PG investors?

While I’m not opposed to P&G divesting Pringles — it’s one of the company’s slower-growing brands — but I wish management had squeezed out a richer price. PG is letting Pringles go for only about 1.7 times annual sales, rather attractive terms for the buyer.

Before today’s news, the stock market valued Diamond’s existing business at 1.4 times sales. So the Pringles buyer isn’t stepping too far outside its own box (or bag, if you prefer). Diamond is best known for nuts, and this deal more than triples the size of the company’s snack business. Small wonder DMND shares rose on the day, up 6.71% to $61.06, while PG fell almost 1% to $61.67.

Even though the Pringles deal won’t give a huge boost to PG’s long-term growth rate, it won’t hurt either. Meanwhile, I look for PG’s dividend declaration later this month (almost certainly a plump increase) to stir up renewed interest in the stock.

PG currently yields 3.1%, and I consider the stock a buy at $64 or less.