Diamond Foods Shares Drop 10% on Acquisition-Related Worries

Shares of Diamond Foods Inc. (DMND) dropped 10% Friday, a day after the snack-nuts producer announced a major acquisition that will require it to sell stock and take on debt.

Late Thursday, Diamond said it agreed to acquire Kettle Foods from Lion Capital LLP for $615 million, a move that gives the company a much bigger bite of the premium potato-chip market and more than doubles the size of its snack business.

But the acquisition--about equal to the company's current market capitalization of about $650 million--also means it will sell new shares and take on a new five-year, $600 million credit facility.

"It looks like a good long-term move, but it's a very major undertaking,"Northland Securities analyst Chris Krueger said. "It adds some uncertainty, and for some investors, it's a good excuse to sell some stock."