PepsiCo to buy South Africa's Pioneer Foods for $1.7bn

PepsiCo has agreed to buy South Africa’s Pioneer Foods Group for $1.7bn.

The US food and drinks company has offered 110 rand per share in cash for each Pioneer share, which represents a 56% premium to the 30-day volume weighted average price prior to the cautionary announcement on 15 July.

PepsiCo said Pioneer has "a robust, locally relevant product portfolio" that complements its current line-up, with "strong" positions in cereals, juices and other African nutritional food staples, including well-known, scaled brands such as Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko, and White Star.

It said the acquisition will help the group gain a solid beachhead for expansion into Sub-Saharan Africa by boosting its manufacturing and go-to-market capabilities, enabling scale and distribution.

PepsiCo chairman and chief executive officer Ramon Laguarta said: "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."

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

"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."

The acquisition, which has been unanimously approved by the boards of directors of both companies, is expected to close by the first quarter of 2020.

RBC Capital Markets said: "This acquisition is a testament to the fact that new CEO Ramon Laguarta is serious about reinvesting behind the business to drive future growth and is willing to be more active with M&A for the right opportunities. We are supportive of this deal and believe it is the right long-term decision, but our near-term view is unchanged."

The bank reiterated its 'sector perform' rating on the stock.