Prospective purchaser has to restate financial statements for two years, could be enough to trigger tightly-drafted material adverse change clause
NASDAQ-listed Diamond Foods last year agreed to pay $1.5 billion to buy the Pringles brand from Proctor & Gamble. Yesterday, Diamond announced that it is to restate its 2010 and 2011 financial statements (because of the previous accounting treatment of “certain crop payments to walnut growers”) and is to appoint a new CEO and Chief Financial Officer.
This article from the New York Times Dealbook examines whether this restatement will enable Proctor & Gamble to call off the deal (which has not yet closed) with Diamond under the terms of the acquisition agreement’s material adverse change clause – and concludes that P&G will probably be able to achieve the rare feat of successfully invoking a MAC clause.
Which P&G is likely to want to do, given that the consideration it was to receive for the Pringles sale is Diamond shares – which fell 30% yesterday.
UPDATE 15 February 2012: The MAC clause was invoked and Proctor & Gamble have quickly sold Pringles to Kellogg.
See also: Do MAC clauses really kill a deal?
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