PepsiCo purchase of Pioneer Foods is finalised
South Africa's competition authority gives the R26bn deal the green light.
The $1.7 billion (R26 billion) purchase of local food company Pioneer Foods by US giant PepsiCo has been given the go-ahead by South Africa’s Competition Tribunal.
The purchase is one of PepsiCo’s largest acquisitions outside the US and it’s also the first major transaction in which ownership by workers and historically disadvantaged individuals was the central determinant in getting the deal approved, said the Tribunal.
PepsiCo’s July offer of R110 a share, was more than 50 percent of the value of Pioneer Foods’ shares in the month preceding the offer.
The issue of voting rights by South African employees took centre stage when the companies and the Department of Trade and Industry argued for the approval of the merger before the Tribunal on Thursday. The two companies put forward a proposal which would see employees benefit from a share scheme and earn dividends which satisfied an initially concerned Department of Trade and Industry.
Pioneer, one of the largest producers in South Africa, counts brands like Weet-Bix, Liqui-Fruit, Sasko, and White Star under its banner. The company is currently owned by the PSG Group.
PepsiCo, on the other hand, consists of six divisions which manufacture and distribute snacks and beverages that are already available in South Africa including Simba, Nik Naks, Lays, Doritos and Pepsi soft drinks. Pioneer Foods’ acquisition will be facilitated through PepsiCo’s South African subsidiary, Simba.
The Tribunal said it approved the merger subject to "public interest" conditions including the implementation of a broad-based black economic empowerment (B-BBEE) ownership plan.
Under that scheme, PepsiCo will issue R1.6 billion of its ordinary shares to broad-based trust belonging to Pioneer Foods’ South African employees.
“This holding will be unencumbered and will allow for immediately realisable dividends. The stock in PepsiCo must, after five years, be converted into a direct shareholding in Pioneer of up to 13 percent,” said the Tribunal when listing its conditions. The Tribunal also said there should be no merger-related retrenchments for a period of five years. Instead, it said the approval is based on PepsiCo committing to expand its production facilities and operations in South Africa by R1 billion over a 5-year period, subject to favourable macroeconomic and political conditions.
“PepsiCo has committed to grow, over a period of five years, the operations of the merged company and to create 500 direct and 2 500 indirect employment opportunities in South Africa,” added the Tribunal.
Among other conditions, Pioneer and PepsiCo must maintain all sales and distribution agreements they have with historically disadvantaged individuals and companies for at least 2 years and contribute R600 million to creating “a development fund” for SMMEs, enterprise and agricultural development as well as education in South Africa. The R600 million includes R300 million for emerging farmers, R200 million for scholarships to historically disadvantaged individuals, and R100 million for entrepreneurs.
PepsiCo wants to use the ownership of Pioneer Foods to expand into Africa, initially focusing on the Ceres juice, Safari dried fruit and Rooibos brands. PepsiCo said in a statement that, together with Pioneer Foods, it is “committed to playing a constructive role in the government’s journey to re-ignite inclusive economic growth in South Africa and the African continent at large”.