PepsiCo takes Africa foothold with US$1.8 bil Pioneer deal

Signage is seen on the side of a delivery truck outside the Pepsi Beverages plant in Louisville, Kentucky on Feb 11, 2018. (Bloomberg pic)

JOHANNESBURG: PepsiCo agreed to buy South Africa’s Pioneer Foods Group for about 24.4 billion rand (US$1.8 billion), adding local brands such as Weet-Bix breakfast cereal and Ceres fruit juice to ignite a push across the continent.

The deal gives the US drinks giant a hub from which to expand more aggressively in sub-Saharan Africa, said Eugene Willemsen, who is moving to Cape Town from PepsiCo’s New York headquarters to oversee the region.

“This transaction is all about growth. We are looking to expand our footprint,” he said by phone on Friday.

PepsiCo offered 110 rand a share for Pioneer, a premium of about 56% over the last closing price before deal speculation began in earnest on Monday, the companies said in separate statements.

Zeder Investments, Pioneer’s biggest shareholder with a 27% stake, will vote in favour of the deal, alongside investors holding more than half the food maker’s stock.

Pioneer’s shares soared 30% to 101.03 rand as of 11:28am in Johannesburg, while Zeder jumped by 23% to a seven-month high. Bloomberg News reported the deal on Thursday.

The acquisition gives PepsiCo several brands and manufacturing facilities in countries including Nigeria and Kenya as well as South Africa.

The deal is the first major international purchase under new Chief Executive Officer Ramon Laguarta, who took the helm in October, and builds on a US$3.2 billion buyout of Israel’s SodaStream International last August.

For Pioneer, the takeover comes at a time when the Pretoria-based company has been struggling to cope with a consumer-spending slump in its home market, fuelled by high unemployment and rising living costs.

The food maker in May reported a decline in first-half profit as the weak economy hurt operating margins, and said the trading environment is likely to remain challenging.

“We feel very positive about the prospects in South Africa, and as such we very much look forward to contributing and investing in the country,” said PepsiCo’s Willemsen.

Pioneer said Monday that it’s in negotiations that could affect the stock price.

The tie-up revives a partnership between the two companies that ended four years ago.

Under that agreement, Pioneer bottled Pepsi products in South Africa.

UBS Group AG, JPMorgan Chase & Co. and Centerview Partners Holdings LP acted as financial advisors to PepsiCo, PSG Group advised Pioneer.