Snyder's-Lance to sell Diamond of California

by Jeff Gelski
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Diamond of California products
Snyder’s-Lance has signed a definitive agreement to sell its Diamond of California culinary nut business to Blue Road Capital.

CHARLOTTE, N.C. – Snyder’s-Lance, Inc. on Nov. 28 said it had signed a definitive agreement to sell its Diamond of California culinary nut business to Blue Road Capital, a private equity investment fund. The sale aligns with Snyder’s-Lance's strategy to focus more resources on its core brands, the Charlotte-based company said.

Carl Lee Jr., Snyder's-Lance
Carl Lee, president and c.e.o. of Snyder’s-Lance

“In the short term, this portfolio move enhances our focus on core brands that have a higher growth profile leading to higher returns over time,” said Carl Lee, president and chief executive officer of Snyder’s-Lance, in a Nov. 28 conference call. “The transaction is accretive to both margins and capital return. It enables dynamic capital reallocation and is incremental to our stated goals of reducing leverage.”

Terms of the transaction were not disclosed. The Diamond of California business had net revenues of $42.9 million in the third quarter of this fiscal year. The Diamond of California business was part of the acquisition by Snyder’s-Lance of Diamond Foods, Inc. That transaction, which closed in February of this year, included such snack brands as Kettle chips, Pop Secret popcorn and Emerald snack nuts as well as Diamond of California culinary nuts.

“When we acquired Diamond Foods, our focus was to expand our portfolio of brands focused on better ingredients, quality and taste, and the addition of Kettle, Pop Secret and Emerald through the Snyder's portfolio has positioned us to be an even stronger leader in the snack food industry with the brands that offer what consumers expect today,” Mr. Lee said. “As with most acquisitions, we picked up a business that, while attractive, was not completely aligned with our core business.

Diamond Brands - Kettle brand chips, Emerald Nuts, Pop Secret popcorn
Selling Diamond of California allows the company to focus on the other three Diamond Foods brands.

“This move will allow us to put more effort behind our better-than and better-for-you snack strategy. Today's announcement that we are divesting the culinary nut business allows us to be more efficient in deploying our capital against the growth opportunities across our portfolio, maintain a disciplined and focused operation while also improving the overall margins and return profile of the company.”

Mr. Lee said Snyder’s-Lance identified the potential divestiture of Diamond of California early on and incorporated that consideration into its ultimate purchase price of Diamond Foods.

Diamond of California operates out of a facility in Stockton, Calif. Following the divestiture, Snyder’s-Lance will continue to produce Emerald snack nuts in the facility under an agreement with the buyer, Mr. Lee said.

Emerald nuts
Snyder’s-Lance will continue to produce Emerald snack nuts in the facility under an agreement with the buyer.

Snyder’s-Lance expects to close on the divestiture of the Diamond of California business by the year’s end. Snyder’s-Lance will use a majority of the sale proceeds to reduce debt levels, said Alex Pease, executive vice-president and chief financial officer for Snyder’s-Lance, in the Nov. 28 conference call. The divestiture is not expected to materially impact the full-year 2016 outlook for Snyder’s-Lance.

“Looking ahead, specifically at the fiscal 2017 financial impacts, we expect the following,” Mr. Pease said. “We expect the sale of Diamond of California will modestly reduce the amount of absolute e.p.s. accretion in dollar terms from the Diamond Foods acquisition in 2017 until that capital is redeployed in the future.”

While Snyder’s-Lance has yet to provide guidance for 2017, the company anticipates the divestiture to reduce roughly 8c to 12c earnings per diluted share, Mr. Pease said.

Diamond of California nut toppings
Snyder's-Lance anticipates the Diamond of California divestiture to have an impact of roughly 8c to 12c on earnings per diluted share.
 
“This impact is based on two primary factors,” he said. “First, the expected financial contribution of Diamond of California and, second, the loss of cost synergies associated with the Diamond of California business that can no longer be realized. Of course, these are offset by the fact that the Diamond of California business had a lower margin profile relative to the legacy brands, and we also have a benefit of interest savings that we will realize from paying down debt sooner.” 
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