New York-based food and beverages giant plans Africa expansion with $1.7 bn deal

New York-based food and beverages giant, PepsiCo has made an offer to buy South African Pioneer Food Group, which makes Sasko bread and Ceres juices for $1.7 billion as it plans to enter the African market. This will boost the company’s manufacturing and go-to-market capabilities, enabling scale and distribution.

“Pioneer Foods forms an important part of our strategy to not only expand in South Africa but further into sub-Saharan Africa as well,” PepsiCo Chairman and CEO Ramon Laguarta said in a statement.

The transaction which is the biggest ever for the US company outside its home country, has already been approved by the boards of both companies.

According to a statement made available to TheNerve Africa, PepsiCo will offer Pioneer’s owners, including agribusiness investment company Zeder Investments, which holds Pioneer as part of its portfolio, at least R110 ($7.9) 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 percent of shareholders, including Zeder.

Both Pioneer and Zeder’s shares rallied on Thursday, ahead of the announcement, with Pioneer’s stock closing 6.3 percent up at R77.60 ($5.57) but on Friday, Pioneer’s shares surged 30.2 percent to R101.03 ($7.26) in early trade, while Zeder rose 29.2 percent to R5.13 ($0.37).

Food producers in South Africa have struggled to produce maize and other products due to dry weather. This has affected many companies such as Pioneer, which uses maize in many of its products. In May this year, Pioneer reported a decline in half-year earnings over shortages in the staple food.

Pioneer is the latest consumer goods firm to be the target of a buyout after South Africa’s Clover Industries,  which processes several products including yoghurt, beverages, and olive oil. The company began takeover talks with a consortium of companies called Milco SA last year.

Pioneer Foods is one of the largest South African producers and distributors of a range of branded food and beverage products. Its brands include Bokomo, Maizena, Weet-Bix, Liqui-Fruit, Ceres, Marmite, ProNutro, Safari and Spekko and Bovril. Pioneer Foods exports to more than 60 countries across the globe. The growing international business represents 21percent of operating profit. There are two more reporting divisions, namely Essential Foods and Groceries, representing 64 and 22 percent respectively. PepsiCo owns the Lay’s, Fritos, and Doritos chip brands, and food brands such as Quaker Oats.