Merger and acquisition strategies and impact

Economics

Diamond Foods acquires Kettle Foods

Diamond Foods Inc. has agreed to buy Kettle Foods Inc. In a $615 million, all-cash deal that doubles its business

Diamond Foods is a high-growth packaged food company focused on building, acquiring and energizing brands including Diamond of California® culinary nuts, Emerald® snack nuts, and Pop Secret® microwave popcorn. Kettle Foods pioneered the kettle-cooked chip that set the standard for the 'healthy' chip in the United States and the Unites States. The company's products are also distributed throughout Japan, Guam and Western Europe. It had sales of $235 million in 2008, according to Lion Capitals Web site. While Diamond Foods has a strong history of international sales, Kettle's developed operations in the United Kingdom offers Diamond a platform for European and United Kingdom expansion.

The deal will add to earnings in fiscal 2011 after accounting for marketing costs and excluding integration expenses. The funding for the purchase will come partially with a new five-year $600 million credit facility, a future equity offering and available cash resources. Diamond is expecting full year earnings per share to be in the range of $2.25 to $2.35.

Pursuant to the agreement, Diamond will acquire Kettle operations in both the United States and the United Kingdom, which are the world's two largest chip markets. This increased Diamond's addressable market by $9 billion. The transaction is structured as a purchase of all of the outstanding shares of a parent holding company of the U.S. And U.K. Kettle operating entities. On a pro forma basis, the addition of Kettle Foods would add more than $250M in revenues and almost double Diamond's EBITDA.

In terms of diversification, with the addition of Kettle's premium brands such as Spicy Thai and New York Cheddar flavored potato chips to its lineup of packaged nuts and popcorn Diamond can take advantage of cross-promotional opportunities in the U.S. across a diversified offering of three complementary brands (Emerald®, Pop Secret® and Kettle). San Francisco-based Diamond shed 53 cents, or 1.35%, to close at $38.71. The stock has gained 8.9% this year.

United Airlines parent UAL Corp acquires Continental Airlines

Both of these corporations are airlines with well-developed domestic and international components. The airline industry has been hammered in the past two years by volatile fuel prices, low-cost competition and overcapacity. The acquisition will likely help United Airlines it attract more business travelers because the merged company will fly to more international and domestic donations while cutting costs and reducing competition. A JP Morgan Chase & Co analysis estimated the combined company will be able to lop off 8% of their capacity and cut expenses by 5%.