FINAL TRANSCRIPT
PG - Procter & Gamble Co Conference Call to Merge Pringles Business
into Diamond Foods, Inc.
Event Date/Time: Apr. 05. 2011 / 2:00PM GMT
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
CORPORATE PARTICIPANTS
Jon Moeller
The Procter & Gamble Company - CFO and VP
Bob McDonald
The Procter & Gamble Company - CEO, Chairman, and President
CONFERENCE CALL PARTICIPANTS
Bill Schmitz
Deutsche Bank - Analyst
Ali Dibadj
Sanford C. Bernstein & Company, Inc. - Analyst
John Faucher
JPMorgan Chase & Co. - Analyst
Caroline Levy
CLSA Limited - Analyst
Javier Escalante
Weeden & Co. - Analyst
Alec Patterson
Dresdner RCM Global Investors - Analyst
PRESENTATION
Operator
Good morning and welcome to Procter & Gamble's Snacks Merger Conference Call. Today's discussion will include a number
of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q, and 8-K Reports, you will see a discussion of
factors that could cause the Company's actual results to differ materially from these projections.
Now I will turn the call over to P&G's Chief Financial Officer, Jon Moeller. Please proceed, sir.
Jon Moeller - The Procter & Gamble Company - CFO and VP
Thanks and good morning, everyone. Bob McDonald joins me this morning. Earlier this morning, Bob and Michael Mendes, CEO
of Diamond Foods, announced our plans to exit the Snacks business and for Diamond to a part of the business in a Reverse
Morris Trust transaction.
Hopefully you had an opportunity to listen to the joint webcast. If not, I encourage you to listen to the replay on our website.
The intent of this call is to discuss in more detail the transaction steps and financial implications for Procter & Gamble and our
shareholders.
As Bob described earlier, with this transaction, we are advancing our strategic objective of bringing even greater focus to our
efforts and investments to grow our remaining portfolio. Our recently announced plan to form a partnership to accelerate our
growth and consumer health care is an example of this.
Our financial goals in this transaction are to maximize the after-tax value of the Snacks business for Procter & Gamble shareholders
while minimizing earnings per share dilution. The value Diamond is offering for the business and the tax-efficient structure of
the deal accomplish both of these goals.
1
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
The estimated value for the transaction is $2.35 billion comprised of debt assumed by Diamond and Diamond common stock.
The equity portion is represented by 29.1 million shares for 57% of the combined Diamond and Pringles company.
Under the terms of the agreement, P&G will establish a separate entity for the Pringles business and related assets. We expect
to distribute shares of the Pringles entity in a tax-free split-off transaction in which P&G shareholders can elect to exchange P&G
shares for shares of the Pringles equity. Those Pringles shares will be simultaneously merged into Diamond.
Only P&G shareholders who exchange their shares will own Diamond shares following the transaction. The Procter & Gamble
Company will not own any shares in Diamond after the merger. We expect the details of the transaction to be finalized in the
coming months.
The parties have also agreed to a collar for the transaction within an upward maximum amount of $150 million and downward
maximum amount of $200 million. The collar will be based on the change in Diamond stock price from a base price of $51.47
as compared to Diamond's five trading day weighted average closing share price or pre exchange price ending two trading
days prior to the commencement of the exchange offer.
The amount of debt placed by P&G and assumed by Diamond will vary between $0.7 billion and $1.05 billion. The exact amount
will be determined based on the differences between the base price and the pre-exchange price. The net effect of the collar is
that the total value of the transaction remains at $2.35 billion within the collared range. At the high end of the collar, represented
by a Diamond share price of $56.62, the equity value of the transaction will be $1.65 billion and the debt portion of the value
will be $0.7 billion.
At the low end of the collar, represented by a Diamond share price of about $44.61, the equity value will be $1.3 billion and the
debt portion will be $1.05 billion. Outside the collar, the value of the equity in the total value of the transaction will vary with
Diamond share price.
The transaction is expected to close by the end of the calendar year and result in a significant one-time gain for Procter & Gamble.
At $2.35 billion, the net one-time noncore impact would increase earnings by approximately $1.5 billion or $0.50 per common
share outstanding. On an annualized basis, we expect the transaction to be dilutive to earnings per share by $0.02 to $0.04 per
share.
The Snacks business had sales of nearly $1.4 billion and operating income of about $170 million in fiscal 2010.
Loss earnings to the business will be partially offset by a reduction in outstanding P&G shares, resulting from the stock exchange
with Diamond.
To conclude, we are very pleased with this transaction. It is another important step in the process of focusing our business
portfolio and advancing our purpose-inspired growth strategy to serve more consumers in more parts of the world more
completely, all while maximizing the value for P&G shareholders.
As I said, we expect to close the deal later this calendar year, but timing will be dependent on finalizing and completing the
various steps of the Reverse Morris Trust transaction and receiving necessary regulatory approvals. We will provide updated
financial impacts when the transaction is completed.
Before I turn the call over to questions, Bob and I would like to acknowledge the efforts of our Snacks employees who have
built this strong and valuable business. Pringles will be a core brand and a high priority for Diamond Foods and we are confident
that Diamond will be an excellent home for our Snacks employees.
With that, Bob and I would now like to take your questions.
2
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
QUESTIONS AND ANSWERS
Operator
(Operator Instructions). Bill Schmitz with Deutsche Bank.
Bill Schmitz - Deutsche Bank - Analyst
Good morning.
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
Good morning, Bill.
Jon Moeller - The Procter & Gamble Company - CFO and VP
Hello, Bill.
Bill Schmitz - Deutsche Bank - Analyst
I think you mentioned in the opening comments, but at today's stock price, obviously, the equity value will be considerably
higher, so how did you kind of back in to the $1.5 billion for the 29.1 million shares? I mean, what's --? How did you pick that
stock price?
Jon Moeller - The Procter & Gamble Company - CFO and VP
The $1.5 billion is at the base price that I described of $51.47. So anything that is higher than that within the collar would result
in no change to that $2.35 billion a share price that is above $56.62 at the time of the close of the transaction or just preceding
the tender offer would yield higher value.
Bill Schmitz - Deutsche Bank - Analyst
Okay. And then how are you going to handle the segment reporting now? Because it looks like the Pet business is in the
doghouse, so to speak. It is all by itself.
Jon Moeller - The Procter & Gamble Company - CFO and VP
We are still working through our segment reporting plans going forward. And obviously that is something that we will be
working with the appropriate authorities as well. So I can't give you a specific answer there, but it's something we are still
working on.
Bill Schmitz - Deutsche Bank - Analyst
Okay and then one last one quickly. Is there going to be any stranded overhead from the deal? I mean I know there is a transition
services agreement, but will this require any kind of restructuring charge on your part?
3
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
Jon Moeller - The Procter & Gamble Company - CFO and VP
There are certainly overheads that are supporting this business in addition to other businesses which quote would be stranded
as part of this. We are still working through exactly how we plan to deal with that and any restructuring that would be part of
that and we will communicate that as part of an update further down the road.
Bill Schmitz - Deutsche Bank - Analyst
Okay, and that is not part of the $0.02 to $0.04 though or it is and it is just too early?
Jon Moeller - The Procter & Gamble Company - CFO and VP
It is just too early. Thank you.
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
Thank you, Bill.
Operator
Ali Dibadj with Bernstein.
Ali Dibadj - Sanford C. Bernstein & Company, Inc. - Analyst
Just wanted to follow-up first off on the stranded cost question. On Folgers, I think it was 450 --, I don't have in front of me, I
think it was a $450 million stranded cost charge.
I know it is a little early, but how can you guide us in terms of thinking about that as it relates to this versus that transaction?
Jon Moeller - The Procter & Gamble Company - CFO and VP
Two things. One, if my memory serves me correctly and I am speaking from memory here, the Folgers incremental charge was
between $300 million and $350 million.
Ali Dibadj - Sanford C. Bernstein & Company, Inc. - Analyst
Okay.
Jon Moeller - The Procter & Gamble Company - CFO and VP
This is a smaller business than the Folgers business. So if you just looked at it ratably, you would expect a much lower charge.
But you know, one of the things, for example, is that in Folgers, we had a CPG sales force that was supporting that business.
That isn't the case here, so there is less stranded overhead in that regard.
4
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
In other words, we have a cost of it [as] the selling on this business.
Ali Dibadj - Sanford C. Bernstein & Company, Inc. - Analyst
Okay, so all else equal kind of expect less than Folgers is how we just --.
Jon Moeller - The Procter & Gamble Company - CFO and VP
All else equal, that is correct.
Ali Dibadj - Sanford C. Bernstein & Company, Inc. - Analyst
Okay. And then just a broader strategic question perhaps and you know where does this leave Pet -- not from a reporting
perspective, but where does this leave Pet in the way you think about it? It is [foodesque], I guess in some ways really different
dynamic from a kind of perspective, but foodesque. Where does it leave Duracell, which always are the ones that folks think
about, at least on our side, of divestiture candidates? How should we think about this in that broader context? Are you more
aggressively looking to get out of things and become more focused? Or is it kind of as usual and this is a good opportunity for
the time being?
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
No, as you know, we don't comment on speculation about potential acquisitions or divestitures. We have an ongoing business
review process where we review our businesses every year with our Board of Directors. And each business is evaluated
independently looking at their sales growth rates, earnings capability, and overall fit with P&G's purpose and its core strengths.
So, this is it. We are committed to growing all of our -- this is it for now. We are committed to growing all of our businesses and
we continue to evaluate each business on its own merits as time goes on.
Ali Dibadj - Sanford C. Bernstein & Company, Inc. - Analyst
And I guess I should be more pointed. Do you have more stringent requirements now that you have done in the past?
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
Well, I don't know about stringent, but they are the same. I mean it's, as I said, sales growth rates, earnings capabilities, overall
fit. And we are pretty tough.
Ali Dibadj - Sanford C. Bernstein & Company, Inc. - Analyst
Right. Thanks very much.
Operator
John Faucher with JPMorgan.
5
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
John Faucher - JPMorgan Chase & Co. - Analyst
Just sort of following up a little bit on Ali's question and not sure if you'll actually, excuse me, be able to give us a whole lot of
color on this. You know, when you look at the tax-free nature of this deal it obviously helps in terms of getting rid of -- in terms
of selling off some businesses.
How much does that factor in into what you are doing here and if you find the right home for businesses, does it end up having
to be sort of a tax-free spinoff? How focused on that are you going to be?
And then I am assuming when you gave us some of these cost save activities over time, I'm assuming the -- sort of the loss of
this and potentially the elimination of some of the stranded overhead doesn't really change any of your longer term cost save
targets. Thanks.
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
Let me just comment overall and then I'll turn it over to Jon. I mean, what's operative here is that the terms that we have just
described is the best way for us to drive shareholder value while also providing more opportunity for the Pringles brand in the
future and also the organization that works on that business. And that total shareholder value is always going to drive us in
these kinds of transactions.
Jon Moeller - The Procter & Gamble Company - CFO and VP
And in terms of being limited to a kind of tax-free transaction, if you look at our divesting past, if you will, and look at the last
four major transactions, one -- the most recent -- being pharmaceuticals, which was not a spin or a split or a tax-free transaction
of any kind, second is Folgers, third was our Western European tissue/towel business again, which was not a structured transaction.
So I don't think we're limited or confined to a given transaction structure as we look at the vesting businesses that we determine
from a strategic standpoint we need to do.
In terms of your question, your second question on the ongoing cost structure and cost targets. I think you're absolutely right.
Frankly, this is fairly small in the grand scheme of things and I would not expect it to change our ongoing tax cost savings
potential or cost targets.
John Faucher - JPMorgan Chase & Co. - Analyst
Okay. Great. Thank you.
Operator
Caroline Levy with CLSA.
Caroline Levy - CLSA Limited - Analyst
Good morning. I was wondering if you could comment on use of the cash from the transaction and if it takes out any of the
CapEx? Was -- I mean, was there much CapEx associated with Pringles.
6
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
I assume not. But, given the arrangement with Teva, is it reasonable to expect that you might be more aggressive in pursuing
OTC growth now?
Jon Moeller - The Procter & Gamble Company - CFO and VP
So there are a couple of questions I think that are within that. CapEx, I don't see this having a material impact on our percentage
of sales figures. We will obviously update you on that as we provide guidance for next year, but this shouldn't move the needle
in that regard.
In terms of cash, I mean most of this is, in effect, being used to retire P&G shares. That is kind of inherent in the structure of the
transaction, and that should be -- that's built in to the dilution numbers that we provided.
And third, I think we have been saying for quite a while that OTC is one of the spaces that we are interested in growing.
Caroline Levy - CLSA Limited - Analyst
That's it for me. Thank you.
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
Thank you, Caroline.
Operator
Javier Escalante with Weeden & Co.
Javier Escalante - Weeden & Co. - Analyst
Good morning, everyone. I have two questions.
One, if you can elaborate on the choosing of your equity partner in terms of a vehicle to dispose Pringles? Diamond, itself, in
terms of an equity transaction and the [PE multiple] of Diamond and how that play out, vis a vis other potential solutions for
dispose the business? That is number one.
And the number two is, if you step back and it is a little bit of a follow-up on Ali's question, just step back you are kind of like
dealing with orphan brands or orphan business, such as [Big]. You have the [OTC] international being dealt with Teva. We have
now Pringles with a more focused player like Diamond.
Do we think -- to what extent Clairol and Cover Girl should be also required at Teva or Diamond Foods kind of partner? Thank
you.
Jon Moeller - The Procter & Gamble Company - CFO and VP
First of all, on Diamond specifically, I think there are two fundamental factors that made them a very attractive partner in this
transaction, probably three.
7
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
One is they are a good company with a strong growth track record, and they offered a real opportunity to continue building
this brand and a continued opportunity for growth for our employees.
Number two, they are -- the value that they were willing to transfer was attractive.
And three, their size made the construct of the Reverse Morris Trust transaction plausible. With a larger buyer, that wouldn't
have been possible.
So those were the three primary characteristics of Diamond that I think make them an extremely attractive partner in this regard.
I think Bob was pretty clear earlier that we are not going to comment on future acquisitions or divestitures. I will say, though,
that I think we are in the strongest place we have ever been from the standpoint of believing that all parts of our portfolio
benefit from our core capabilities and our position to grow.
Javier Escalante - Weeden & Co. - Analyst
Thank you.
Operator
Alec Patterson with RCM. Please proceed.
Alec Patterson - Dresdner RCM Global Investors - Analyst
Good morning. Jon, just quickly, the EBITDA number for Pringles?
Jon Moeller - The Procter & Gamble Company - CFO and VP
The EBITDA number is about [240].
Alec Patterson - Dresdner RCM Global Investors - Analyst
Okay. That's all I needed. Thank you.
Operator
And with no further questions, I would now like to turn the conference over to Mr. Jon Moeller for closing remarks.
Jon Moeller - The Procter & Gamble Company - CFO and VP
I just want to thank everybody again for joining us on short notice. We are obviously available the rest of the day to answer any
questions and we really look at this as a very viable and exciting transaction.
Thank you very much.
8
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.
FINAL TRANSCRIPT
Apr. 05. 2011 / 2:00PM, PG - Procter & Gamble Co Conference Call to Merge Pringles Business into Diamond Foods, Inc.
Bob McDonald - The Procter & Gamble Company - CEO, Chairman, and President
Thank you.
Operator
Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a wonderful
day.
DISCLAIMER
Thomson Reuters reserves the right to make changes to documents, content, or other information on this web site without obligation to notify any person of such changes.
In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking
statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the
assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the
results contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE
AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES
THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON
THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS
BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
©2011, Thomson Reuters. All Rights Reserved. 3942475-2011-04-05T11:42:22.520
9
THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us
©2011 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by
framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the
Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.