Diamond Foods has announced it has entered into a definitive agreement to acquire Kettle Foods, makers of premium potato chips, from Lion Capital LLP for $615 million in cash. This means Diamond will acquire Kettle operations in both the United States and the United Kingdom.

The transaction is structured as a purchase of all of the outstanding shares of a parent holding company of the US and UK Kettle operating entities. It is expected to close by the end of Diamond’s fiscal year 2010, subject to customary conditions, including regulatory approval.

“Kettle Foods’ passion for making great tasting, natural potato chips has attracted a loyal consumer following and shaped a truly premium brand that has our deep respect,” said Michael J Mendes, Chairman, President and CEO of Diamond Foods.

“Diamond and Kettle Foods share a history of relentless focus on flavor and product quality and working collaboratively with our retail partners. By adding Kettle, including its talented team of employees, our snack business will have greater scale, which will help us to drive even greater innovation in the snack market. We expect that the acquisition will be accretive in the first year and is a strong, strategic fit to better support our long-term growth plans.”

Lyndon Lea, Partner of Lion Capital, said, “Our successful ownership of Kettle Foods reflects Lion’s distinctive strategy of investing in and growing strong consumer brands. Since our acquisition in 2006, we have dramatically increased Kettle’s strategic value through category-leading innovation and penetration gains in the US and UK snacking markets, leading to double-digit annualised growth in group revenues and 30 per cent annualised growth in group profitability.”

A highlight of the transaction are that it will significantly improve Diamond’s strength as the Kettle Brandhas been a strong performer in the premium potato chip category with an excellent growth profile and history of expanding profit margins.

Further, the addition of Kettle Foods will more than double the size of Diamond’s snack business, enabling cross-promotional opportunities in the US across a diversified offering of three complementary brands: Emerald, Pop Secret and Kettle.
Diamond expects the Kettle Foods acquisition will be accretive to earnings per share (EPS) in fiscal 2011 after accounting for increased marketing support and financing costs and excluding costs associated with the transaction and integration. The purchase is expected to be funded partially with a new five-year $600 million credit facility, a future equity offering and available cash resources. Assuming the transaction closes prior to the beginning of fiscal 2011, the company is expecting full year EPS to be in the range of $2.25 to $2.35.