Jin Lee/Bloomberg News

With Kellogg’s deal to acquire Procter & Gamble’s Pringles brand for $2.695 billion in cash, Diamond Foods is left with nothing. Proctor & Gamble’s announcement of the deal was accompanied by a terse statement that the consumer products company had terminated its prior agreement to sell Pringles to Diamond Foods.

It is a staggering reversal of fortune for Diamond and its now-suspended chief executive and chairman, Michael J. Mendes.

So it is time to see what we have learned from the twists and turns of this failed deal. Once again, some of these lessons seem rather basic, even cliché, but worth repeating. Frankly, deal makers tend to repeatedly ignore them. The masters of the universe need the reminder.

Related Links Kellogg to Buy Pringles for $2.7 Billion in Cash Deal

Don’t Run Before You Can Walk

Diamond Food was leveraging up to buy Pringles, assuming $850 million in debt. This was also a deal in which a minnow would be swallowing a whale. At the time the deal was announced, 2011 revenue at Pringles was estimated to be about $1.4 billion. Diamond’s 2011 estimated revenue was a third lower, at about $950 million.

Because Diamond could not afford to pay cash for Pringles, Diamond intended to issue $1.5 billion in its common stock in connection with the transaction. Because Pringles was so much bigger, Diamond shareholders would have only owned 43 percent of the combined company. P.&G. shareholders would have owned the rest, a majority of Diamond’s shares.

Diamond made this acquisition as part of a strategy to move away from its longtime focus on selling nuts. It had previously been a consortium formed by almond growers. But Mr. Mendes wanted more. He had already bought the Pop Secret brand, and the Pringles acquisition was Diamond’s chance to transform itself into a more consumer-oriented snack food company.

Mr. Mendes’s strategy was too much too soon. Like the 2008 deal in which Finish Line attempted to acquire the much larger Genesco, this also ended badly.

Mr. Mendes treated the nut business as an orphan child he appeared to want to abandon. This left that business increasingly vulnerable and weak. And that weakness came back to haunt Diamond as the nut business deteriorated. It now appears that the decline was made up through possible accounting manipulation. Mr. Mendes would have been better off keeping a focus on his nut business and growing more slowly, rather than searching for a world-changing acquisition.

Expect Scrutiny

Diamond’s acquisition announcement was fun for the company in the first few days as it celebrated the deal and expansion, but it also led short-sellers to focus on Diamond. The announcement also appears to have spurred frustrated growers to emerge and raise issues with Diamond’s business. This type of scrutiny is not unusual in acquisition deals. But companies often do not expect it, instead treating the acquisition announcement as the end of the matter.

This is anything but the case. Companies should perform their own internal due diligence before announcing a big transaction. In addition, a company should be prepared with both an investor and public relations strategy from the get-go. Diamond failed here. Miserably.

Agreements Matter

P.&G. got lucky. Diamond’s special board committee gave P.&G. an easy out of the agreement by finding that Diamond’s accounting statements had to be materially restated and suspending Mr. Mendes and the company’s chief financial officer, Steven M. Neil. The accounting restatement and suspensions provided P.&G. with grounds to assert a material adverse change claim in order to terminate the deal.

But P.&G. might have been stuck if Diamond’s committee had found differently. If Diamond was able to get its financial statements through the Securities and Exchange Commission, then P.&G. would have had few grounds to exit the deal. This would be despite the fact that significant uncertainty remained about Diamond and its stock price could have remained in the cellar.

P.&G. could have solved this problem by negotiating a common right in acquisition agreements that gives the seller the right to terminate a deal if the buyer’s stock drops below a certain level. In the future, sellers and buyers in similar situations may want to think more seriously about this right.

Sellers Need to Be Wary

Remember when AOL acquired Time Warner in 2000? It was a great deal for AOL, which swapped highly inflated bubble stock for Time Warner’s more stable shares. But the deal did not work out so well for Time Warner shareholders. The combined company subsequently lost hundreds of billions of dollars in market value.

Sellers still have not learned that when you are selling a business and receiving stock in exchange, it is really an investment in the buyer. P.&G. certainly didn’t. P.&G. was essentially making a $1 billion-plus investment in Diamond, but failed to do the due diligence that the short-sellers did. Instead, P.&G. appeared to rely excessively on the managerial talents of one person, conditioning the deal on Mr. Mendes staying in place at Diamond before the acquisition completed.

Not only that, P.&G. was too clever by half, as Breakingviews has noted. By going for a more complex transaction that saved on taxes, it almost lost out on a much simpler deal. Complexity increases deal risk and the ability to successfully complete transactions.

Short-Sellers Have a Purpose

No one likes the person at the craps table betting the Don’t Come bet. It is no fun for the rest of us that he or she is betting we will all lose. This is a simplistic but partly valid reason why short-sellers often come in for negative criticism. Some of this criticism may be legitimate when market manipulation is found. The short-sellers’ initial claims of accounting problems at Diamond also froze this deal in its tracks.

Once accounting fraud claims emerge, it is hard for a company to move forward, since it must investigate and clear the charge. Accounting claims, even if untrue, can throw a deal seriously off track, and this may be a problem in the future as short-sellers raise unwarranted claims.

But in this case there appears to have been truth. The Diamond deal shows the value of short-sellers. The problems at Diamond were first spotted by the short-sellers and brought to light. They served a valuable market purpose.

With Time, There May Be Another Buyer

The whisper on the street was that P.&G. was stuck with Diamond because there was no other buyer. But sure enough, not only has one emerged, but Kellogg is paying $350 million more than Diamond would. This is anecdotal proof that buyer assessments of the market and ability to pay are constantly in flux. What was once a barren market may prove to be fertile (with time).

The More Things Change, the More They Stay the Same

Take a look at the Kellogg’s slide deck for its investor presentation on the Pringles acquisition. It looks remarkably similar to the hopeful one Diamond issued back when it announced its Pringles deal in April 2011. Hopefully, Kellogg will have better luck.

C.E.O. Hubris Can Kill a Company

Enough said.