Oddworld: Diamond Foods, From Probe to M&A to Suicide (DMND)

Diamond Foods, Inc. (NASDAQ: DMND) has gone from one of the great growth stories to a very troubled company in a very short period of time.  From a prior walnut accounting probe over crop payments to walnut growers and the delayed $1.5 billion Pringles acquisition, now the company is reeling from the suicide a member of its audit committee. 

CNBC’s Herb Greenberg has helped break open a story that goes beyond just “weird.”  In a world where investors just assume the worst, this is a case where Wall Street is making its vote now and will wait for facts later.

Director Joseph Silveira, the director which killed himself, had reportedly recused himself from the current accounting investigation due to his status as a walnut grower and that would have posed a conflict of interest.

Where this gets interesting is that the company has maintained, according to Bloomberg, that there is no connection between Silveira’s death and the accounting probe.  Is that true?  Perhaps, but frankly we will not endorse any such notion but we will also avoid jumping to the worst conclusion without the facts being public either.

There are a few obvious observations that come to mind.  First and foremost, investors are obviously assuming that the worst case of the accounting probe is likely.  Second, that Pringles deal is probably going to be assumed as having moved from delayed to “questionable” as the entire market cap of Diamond Foods is now only $655 million  Third, we don’t want to use the “restatement” word, but how can that not come up as a serious concern at this point?  Even worse, “irregularities” could become the biggest concern.

Now, for the hope… There is nothing wrong at all with hope, but hope without action is generally not a good strategy when it comes to finances.  The hope would be that Mr. Silveira’s suicide is not related to any such issues around the walnut payments probe and that this will pass without restatements and without irregularities coming into the equation.  That is the hope.

Again, Wall Street asks questions after taking action and the verdict so far is a clear one.  Diamond Foods hit a new 52-week low of $29.16 earlier this morning versus a prior high of $96.13.  Shares are down 15% at $29.73 after almost the first hour of trading.

JON C. OGG