PepsiCo offers to buy Pioneer Foods in mega-billion deal

In a vote of confidence about SA’s long-term prospects, New York-based food and beverages giant, PepsiCo, has made an offer to buy Pioneer Food Group, which makes Sasko breads and Ceres juices, in a deal worth about R25.4bn.

In a joint statement, PepsiCo said the deal made sense as Africa “is a key market for future growth”.

“Acquiring Pioneer Foods will increase PepsiCo’s presence in a country and region of high growth potential … Pioneer Foods forms an important part of PepsiCo’s strategy to expand not only in SA but in sub-Saharan Africa as well.”

The deal “will contribute meaningfully to the growth of the South African economy under its newly elected leadership” and could spur more foreign direct investment, PepsiCo said.

Pioneer said it will gain access “to leading research and development and brand expertise, along with global scale and distribution”.

PepsiCo will offer Pioneer’s owners, including Zeder Investments, at least R110 a share, Pioneer said on Friday. An independent board at Pioneer recommended that investors accept the offer, which already had the support of 52.9% of shareholders, including Zeder.

Both Pioneer and Zeder’s shares rallied on Thursday, ahead of the announcement, with Pioneer’s stock closing 6.3% up at R77.60.

On Friday, Pioneer’s shares surged 30.2% to R101.03 in early trade, while Zeder rose 29.2% to R5.13.

PepsiCo is already represented in SA by brands including Simba, Nik Naks, Lays, Doritos, Pepsi and 7UP.

Independent analyst, Anthony Clark, said while the offer price seemed fair, PepsiCo was buying “a great company with strong brands at the lowest ebb of its earnings cycle” and ahead of an expected earnings recovery. The offer price was also less than half of Pioneer’s 2015 highs of more than R210 a share.

But Pioneer would benefit from having a “rich parent” that could “take it to the next level”, Clark said.

Zeder, meanwhile, was “selling the family silver”. Clark said the investment company could use the proceeds to pay down its debt of about R1.5bn and pay a special dividend to shareholders, including PSG. It may also make another bid for Kaap Agri, he said.

Zeder confirmed in an announcement it would pay down debt and pay a special dividend. It would also “invest in new opportunities or reinvest in Zeder’s existing underlying portfolio”.

Zeder said it supported the PepsiCo deal as it did not want to “stand in the way of Pioneer Foods and its growth objectives”. The deal was also fair, it said.


The announcement from Premier Foods

PepsiCo today announced that it has entered into an agreement to acquire all the outstanding shares of Pioneer Foods Group Ltd for R110.00 per share in cash (approximately $1.7-billion), which represents a 56% premium to the 30-day volume weighted average price prior to the cautionary announcement on July 15, 2019.

Tertius Carstens, CEO of Pioneer Foods and Ramon Laguarta, Chairman and CEO, PepsiCo.

Pioneer Foods has a robust, locally relevant product portfolio that complements PepsiCo’s current lineup, 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.

At the same time, this 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.

Finally, this transaction 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. With Pioneer Foods, PepsiCo adds an extraordinary team of associates who will be instrumental to growth across the continent.

“As we look to accelerate our growth in key markets around the world and achieve our vision to Be the Global Leader in Convenient Foods and Beverages by Winning with Purpose, we are absolutely thrilled to join forces with Pioneer Foods, one of South Africa’s leading food and beverage companies,” said PepsiCo Chairman and CEO, Ramon Laguarta.

“Pioneer Foods represents a differentiated opportunity for PepsiCo and allows us to immediately scale our business in Africa. Pioneer Foods forms an important part of our strategy to not only expand in South Africa, but further into sub-Saharan Africa as well. Our businesses are highly complementary, and we look forward to working with the Pioneer Foods team to successfully build and implement a shared vision in the region.”

This transaction creates a leading food and beverage company in Africa led from South Africa, with a commitment to supporting the broad socioeconomic imperatives of employment, talent development, and benefiting local suppliers.

It will 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. PepsiCo is keenly aware of the importance of economic transformation through Broad-Based Black Economic Empowerment (“BEE”) and intends to support Pioneer Foods’ BEE program.

“Today’s announcement marks a very exciting milestone for Pioneer Foods and our people, and highlights the strength of what we have created,” said Tertius Carstens, CEO of Pioneer Foods.

“As part of PepsiCo, we will have greater scale to expand our leading brands, greater capital to invest in local agriculture and people, greater access to leading global capabilities and a partner committed to taking our company to even greater heights.”

As part of this transaction and PepsiCo’s goal to become faster and more locally focused, the company will create a new operating sector for Sub-Saharan Africa.

PepsiCo SSA will be led by Eugene Willemsen, who most recently served as Executive Vice President of Global Categories & Franchise Management. Willemsen, who has been with PepsiCo for nearly 25 years, has extensive experience in growth markets, having previously led the company’s businesses in Turkey and South East Europe.

This new structure will not impact PepsiCo’s reporting structure, and PepsiCo SSA will remain part of Europe Sub-Saharan Africa (“ESSA”) from a financial reporting perspective.

The acquisition, valued at approximately $1.7-billion, which implies approximately 11x FY2020E consensus EBITDA, 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 subject to a Pioneer Foods shareholder vote, certain regulatory approvals, and other customary conditions, and closing is expected by Q1 calendar year 2020.

UBS Investment Bank, JP Morgan and Centerview acted as financial advisors to PepsiCo. Bowmans acted as the South African legal counsel to PepsiCo. PSG Capital acted as corporate and transaction advisor to Pioneer Foods and Webber Wentzel acted as South African legal counsel to Pioneer Foods.