Pioneer Foods confident competition authorities won't reject R24.4bn PepsiCo deal
By Sibongile Khumalo - Jul 25th, 15:00
Pioneer Foods CEO Tertius Carstens is confident that the company’s R24bn takeover by PepsiCo will be approved by competition authorities, as he believes the acquisition has no negative implications for local industries.
The mega-deal, announced last week, has been hailed by some analysts as a nod for the local economy, in the face of prevailing economic headwinds that hit investor sentiments.
New-York headquartered PepsiCo offered R110 per share - a premium of about 56% over the last closing price - to acquire the company, which manufactures popular food and cereal products such as Bokomo Weet-Bix, Sasko and Spekko rice.
"From a theoretical point of view, there should be little concern about these businesses coming together," Pioneer Foods CEO Tertius Carstens told Fin24.
Carstens described the products of the two companies as "highly complementary" with "little duplication".
PepsiCo consists of six divisions which manufacture and distribute snacks and beverages which are already available in South Africa like Simba, Nik Naks, Lays, Doritos and Pepsi soft drinks.
The deal will also have to pass through anti-trust authorities from other jurisdictions where it operates. It comes after the Competition Commission blocked a proposed takeover of construction group Murray & Roberts by German company Aton.
The commission cited competing interests among the merging entities. Carstens is confident that the Commission is unlikely to raise similar concerns as the products of the two companies.
PepsiCo made an unsolicited bid for Pioneer Foods which operates joint-venture operations in countries such as Nigeria, Botswana and Namibia.
It is this broad pan-African footprint that made it an attractive target for PepsiCo’s growth strategy, with the company saying it intends to use South Africa as a hub for expansion throughout Africa.
Pioneer shareholders are also set to vote on the deal at a meeting in October, but a number of large shareholders have already shown interest in the takeover.
"We need a vote of 75% in favour of the shares represented at the General Meeting," said Carstens.
Once the deal is concluded, which is expected in the early part of 2020, Pioneer would de-list from the JSE. According to a Moody’s report, PepsiCo faces challenges to grow its volume in mature carbonated soft drink markets, but this weakness is partially offset by its strong innovation programme and productivity initiatives.
"Pioneer Foods will give PepsiCo a strong foothold in the fast-growing South African market, significantly increasing the size of PepsiCo's current business," said Linda Montag, Moody’s Senior Vice President.
"The acquisition will also serve as a food platform to expand into new African markets, which will help improve PepsiCo's geographic diversification over time."
The transaction will be funded through a combination of debt and cash, according to Moody’s.
The country’s combative labour unions are also expected to have a say in the transaction during consideration by the Competition Commission.Fin24
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