(Reuters) - Diamond Foods Inc (>> Diamond Foods, Inc.) named Brian Driscoll, the former leader of Hostess Brands, as its new CEO in a bid to help turn around the snack company after an accounting scandal tarnished its reputation and caused the ouster of top management.

However, some questioned if Driscoll was the right person to lead Diamond, the maker of Pop Secret popcorn and Kettle chips, after Hostess filed for bankruptcy protection in January under his leadership.

"Driscoll's a talented executive but it's ironic that you have a struggling company and they have appointed a person who resigned from Hostess which went bankrupt recently," Bevmark Consulting Chief Executive Tom Pirko said.

"It's an unusual choice and a lot of investors are going to be cautious about what direction Diamond is going to take (under Driscoll)."

Driscoll takes over as Diamond tries recover its credibility with investors, after the previous CEO and the Chief Financial Officer were removed by the board following an internal probe that found Diamond had improperly accounted for payments to walnut growers.

Diamond, whose accounting is being investigated by the U.S. government, also has high levels of debt and the company had to suspend its dividend and agree to pay higher interest in March to retain continued access to its credit facility.

"Driscoll is going to have to re-think what Diamond will do with the nut business in China, how aggressive will they be with acquisitions, how will they re-establish relations with growers," Pirko said.

The previous CEO, Michael Mendes, spent millions on acquisitions, but a deal to buy Pringles from Procter & Gamble Co (>> The Procter & Gamble Company) fell through after the probe led the company to restate its results.

Repairing strained relations with about a thousand walnut growers, who have for years complained of underpayment, may prove to be difficult for Driscoll.

Douglas Barnhill, a Diamond grower who operates his family's 75-acre walnut grove in Oakdale, California, said he was concerned about whether Driscoll has the understanding required to work with the California walnut grower community.

"I haven't felt good about Diamond in a long time, and (the CEO announcement) does nothing to change that," said Barnhill, who said Diamond has paid him less on the crop he delivered last fall than what he has received from two other rival processors.

'HIGH PERSONAL INTEGRITY'

Driscoll will replace interim chief Rick Wolford, who will remain on the Diamond's board, the company said.

Driscoll was chief executive of Hostess Brands, known for Twinkies and Wonder Bread, from June 2010 until March.

In January, that privately held company filed for bankruptcy protection for the second time in less than three years, after failing to reach an agreement with workers on pension and health benefits.

Strong leadership skills and high personal integrity and values partly led the board to pick Driscoll, said Paul Kranhold, an external spokesman for Diamond.

"He took on a very difficult set of issues in his most recent position. But we think that will also serve him well at Diamond," Kranhold said.

Driscoll, who will also join Diamond's board, previously held managerial positions at Nestle SA (>> Nestle SA) and Kraft Foods Inc (>> Kraft Foods Inc), after starting his career in 1980 at Procter & Gamble Co (>> The Procter & Gamble Company).

Diamond will pay Driscoll a base salary of $825,000, plus bonuses, according to a regulatory filing on Monday.

MERGER CANDIDATE?

Sources have told Reuters that Diamond, reviewing its capital structure, has spoken with private equity firms about a potential investment.

Bevmark's Pirko said that he believes that Diamond will eventually be sold.

"Given all of Diamond's problems, Driscoll needs to be open to the prospects of getting a substantial return for shareholders by be willing to talk to different companies about selling Diamond," Pirko said.

Diamond's Kranhold declined to comment.

Shares of Diamond, which briefly traded above $90 in September 2011, closed at $20.27 on the Nasdaq on Monday.

(Reporting by Mihir Dalal in Bangalore; additional reporting by P.J. Huffstutter in Chicago and Lisa Baertlein in Los Angeles; Editing by Saumyadeb Chakrabarty, Leslie Gevirtz and Bernard Orr)

By Mihir Dalal