Expected synergies of the deal
Snyder’s-Lance (LNCE) expects the acquisition of Diamond Foods (DMND) to be accretive with an estimated annual cost savings of $75 million. The company expects to invest $10 million of cost savings in the growth plans of the combined business. Also, it expects to realize 50% of the cost savings in 2016 and 50% in 2017. Additionally, Snyder’s-Lance expects to gain $110 million in present value, with the benefit of tax net operating losses. Once all synergies are realized in 2017, Snyder’s-Lance estimates the transaction to be 20%–30% accretive to EPS (earnings per share).
Snyder’s-Lance set to gain international presence
The combination of Snyder’s-Lance and Diamond Foods is expected to help the company to expand its DSD (direct store delivery) network in the United States. Snyder’s-Lance has a coast-to-coast DSD distribution system with over 3000 IBO (independent business owners) routes, whereas Diamond Foods utilizes direct distribution and third-party distributors. By the end of fiscal 2014, Diamond Foods had six production facilities and nine distribution facilities.
Snyder’s-Lance is a national company operational in the United States. In comparison, revenues from outside the United States for Diamond Foods in fiscal 2015, 2014, and 2013 were 25%, 25%, and 24%, respectively. This revenue was mainly from the United Kingdom, Canada, South Korea, Japan, and the Netherlands.
Diamond Foods’ presence in the UK and across Europe, with manufacturing facilities and full-scale operations, would help Snyder’s-Lance to enter the international market.
In comparison, Kettle is the most attractive brand of Diamond Foods in the Western US and England. But, it might need a stronger national distribution channel in the US to compete against its peer PepsiCo (PEP). Together, Snyder’s-Lance and Diamond Foods would be in a better position to scale up the distribution network nationally and internationally.