Kellogg announced today it is buying Procter & Gamble’s Pringles business for $2.7 billion. Last April, Diamond Foods outbid Kellogg and signed a deal with P&G to buy Pringles for $2.4 billion in a mostly stock-based transaction. That deal was derailed by an accounting scandal at Diamond, which last week was forced to restate earnings for the past two years.
While Kellogg couldn’t compete with Diamond’s original offer because of tax savings generated by how it was structured, once that deal fell through, Kellogg swooped back in. From a negotiation perspective, two important lessons can be learned. First – be prepared. Kellogg could have given up and moved on ten months ago but they clearly were ready to strike when the Diamond deal fell through. Second – leverage is fluid and timing is critical. By moving quickly, Kellogg took advantage of their improved leverage and reached an agreement with P&G before other potential bidders could get involved.