Published: Sun, July 21, 2019
Finance | By Kristine Clayton

PepsiCo to buy Pioneer Foods, position for SSA growth

PepsiCo to buy Pioneer Foods, position for SSA growth

"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", PepsiCo Chairman and CEO Ramon Laguarta said in the statement.

The companies on Friday issued a joint statement indicating PepsiCo will acquire all outstanding shares of Pioneer Foods at R110 per share.

The deal gives the U.S. 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 NY headquarters to oversee the region.

Pioneer Foods exports drinks, grains, and several other products to more than 80 countries.

The acquisition, valued at approximately USA $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.

PepsiCo plans to fund the cost of the acquisition, which represents a 56% premium over Pioneer's last closing price before the deal was announced, with a combination of debt and cash.

The deal will see PepsiCo expand its Sustainable Farming Program in Africa through which it will work with local farmers in Pioneer Foods' communities to help boost yields, improve livelihoods, and preserve precious natural resources.

Pioneer has been struggling in South Africa's weak consumer market, but Willemsen said PepsiCo was "very positive" about the country's prospects.

PepsiCo also confirmed that it meant to support Pioneer Foods' black economic empowerment programme.

He says in 2015, Pioneers Food's share price was R205 and it has been on the decline in recent years.

"Following a disastrous period of economic growth under the rule of the African National Congress and [former President] Jacob Zuma, South African entities are valued at low multiples", he explained.

PepsiCo left South Africa under Apartheid and then returned in 1994, only to file for voluntarily liquidation in 1997 after a fierce battle with its global rival Coca-Cola saw it lose significant market share. "We are supportive of this deal and believe it is the right long-term decision, but our near-term view is unchanged".

Pioneer said Monday that it's in negotiations that could affect the stock price. The sector will be led by Eugene Willemsen, who most recently served as executive vice president of global categories and franchise management.

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