PepsiCo, which is listed on the Nasdaq in the US, has announced on Friday that it has entered into an agreement to acquire all outstanding shares of Pioneer Food Group for R110 per share, a 56.5% premium as of July 12.
Pioneer Foods, which is listed locally on the Johannesburg Stock Exchange, noted the “firm intention” to purchase by PepsiCo in a Sens statement and that the transaction is one of PepsiCo’s largest outside of the US.
Food producers have struggled amid a slump in retail sales as consumers cut back and dry weather hit maize and other produce. Pioneer, which uses maize in many of its products, reported a decline in half-year earnings in May, weighed down by shortages in the staple food.
The local group says in its Sens that this is a demonstration of PepsiCo’s belief in “South Africa’s potential and its long-term commitment to the country”. It adds that the transaction will contribute meaningfully to the growth of the SA economy.
“It could also attract further foreign direct investment and reinforces the case that South Africa is an attractive destination for multinationals,” Pioneer’s statement reads.
Pioneer, whose brands include Weet-Bix cereal, Liqui Fruit juice and Sasko bread, is the latest consumer goods firm to be the target of a buyout after South Africa’s Clover Industries, which processes products including yoghurt, beverages, and olive oil, began takeover talks with a consortium of companies called Milco SA last year.
The US drinks and snack group said on Friday that Pioneer’s product portfolio was complementary to its own and would help PepsiCo to expand in sub-Saharan Africa by adding manufacturing and distribution capabilities.
It added that the acquisition, valued at approximately US $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 relevant regulatory approvals and a Pioneer Foods shareholder vote. Pioneer says in its Sens that the independent board, which was established in relation to the offer, has unanimously recommended the offer to its shareholders.
According to the local group, ordinary shareholders who collectively hold 52.85% of the aggregate of the issued ordinary and Class A shares, “have furnished irrevocable undertakings to vote in favour of or accept the PepsiCo Offer”.
PepsiCo said that the transaction forms part of its goal to become “faster and more locally focused”, and will create a new operating sector for sub-Saharan Africa, led by Eugene Willemsen. “Willemsen, who has been with PepsiCo for nearly 25 years, has extensive experience in growth markets, having previously led our businesses in Turkey and South East Europe,” the company said.
Pioneer’s share price has responded positively to the news, and is up 28.87% to R100 as of 9:30am on Friday.
Shares in agribusiness investment company Zeder Investments, which holds Pioneer as part of its portfolio, also rose more than 22%.
Read the group’s full Sens statement here.