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JSE-listed Pioneer Foods’ share price rose by nearly 31% on Friday after the company announced the conclusion of an agreement with New York-headquartered PepsiCo, which plans to acquire all of the outstanding shares in Pioneer at R110 a share.
The acquisition represents a 56% premium to the 30-day volume-weighted average prior to July 15, when Pioneer issued a cautionary announcement stating that it was in discussions regarding a potential transaction.
The acquisition, valued at about $1.7-billion, will be funded through a combination of debt and cash, and has been unanimously approved by the boards of directors of both companies.
The transaction is, however, subject to a vote by Pioneer Foods shareholders, certain regulatory approvals, and other customary conditions, and closing is expected by the first quarter of 2020.
"Pioneer Foods represents a differentiated opportunity for PepsiCo and allows us to immediately scale our business in Africa,” PepsiCo CEO and chairperson Ramon Laguarte commented.
He added that Pioneer Foods formed an important part of PepsiCo’s strategy to not only expand in South Africa, but also further into sub-Saharan Africa.
The statement pointed out that Pioneer Foods has a “robust, locally relevant product portfolio that complements PepsiCo's current line-up, with strong positions in cereals, juices and other African nutritional food staples, including well-known, scaled brands like Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko and White Star”.
Simultaneously, the acquisition will help PepsiCo gain a solid beachhead for expansion into sub-Saharan Africa by boosting the company's manufacturing and go-to-market capabilities, enabling scale and distribution.
The transaction also brings together two like-minded companies, with both Pioneer Foods and PepsiCo aligned around a vision for building a more sustainable future and investing in communities.
This transaction will further enable PepsiCo to expand its Sustainable Farming Program in Africa and work with local farmers in Pioneer Foods' communities, including women and rural smallholders, to help boost yields, improve livelihoods and preserve precious natural resources, the US firm said.
PepsiCo also confirmed that it intended to support Pioneer Foods’ black economic empowerment programme.
Pioneer Foods CEO Tertius Carstens, meanwhile, said the announcement marked a milestone for the company and added that, through the transaction, the company would have greater scale to expand its brands, greater capital to invest in local agriculture and people, greater access to leading global capabilities and a partner committed to taking the company to “even greater heights”.
More transactions like this should happen, going forward, Gryphon Asset Management analyst Casparus Treurnicht told Engineering News Online.
“Following a disastrous period of economic growth under the rule of the African National Congress and [former President] Jacob Zuma, South African entities are valued at low multiples,” he explained.
He added that while investors should not necessarily “rush out and buy a whole lot of South African labels”, deals like the PepsiCo and Pioneer transaction “make perfect sense”.
According to Treurnicht, PepsiCo has a clear strategy of using Pioneer’s infrastructure as a base to launch its brands into South Africa and the rest of Africa, allowing PepsiCo to achieve “massive synergies and be able to invest huge amounts” of money in the country.
Despite the threat of possible further load-shedding looming over future investments in the country, Treurnicht dubbed the PepsiCo and Pioneer transaction “a vote of confidence in South Africa’s future”.
No challenges should be expected from the competition authorities, Treurnicht told Engineering News Online via an emailed response, as the transaction was “pro-competitive”.
He also noted that, with Zeder being a passive shareholder in Pioneer, the transaction would provide some consolation to Zeder shareholders after years of underperformance.
Zeder’s share price on the JSE had risen by 23% by 14:40 on Friday.
Meanwhile, as part of this transaction and PepsiCo's goal to become more locally focused, the company will create a new operating subsidiary for sub-Saharan Africa, named PepsiCo SSA.
PepsiCo SSA will be led by Eugene Willemsen, who most recently served as PepsiCo executive VP of Global Categories & Franchise Management.
Pioneer’s share price on the JSE rose to R101.59 on Friday afternoon, compared with Thursday’s close of R77.60.