Pioneer’s buyout of Heinz assets ‘makes sense’

Pioneer Foods’s move to buy the shares in Heinz Foods SA that it does not already own “makes a lot of sense” given that its joint ventures are not yielding strong returns, says John Thompson, an analyst at Investec Asset Management.

US multinational Kraft Heinz will sell its 50.1% stake in its South African operations to joint-venture partner Pioneer for an undisclosed amount, Pioneer said on Monday.

The company said it was turning Heinz Foods SA into a wholly owned subsidiary.

Kraft Heinz’s Middle East and Africa MD, Felipe Guimaraes, said Pioneer had the “existing scale and platform in SA to grow the business further”. The deal enables Pioneer to manufacture Heinz’s flagship tomato sauce and other products for two years.

Pioneer said that it would distribute HP & Lea Perrins products and some other Kraft Heinz products. Thompson said that while the purchase price had not yet been disclosed, “strategically, it makes a lot of sense to own 100% of the cash flow and control the destiny of those big brands”. Pioneer was not generating meaningful returns from its joint ventures, including Heinz Foods SA, he said. Pioneer’s latest financial statements show the Heinz joint venture had net assets worth R336m in financial year 2016, with profit after tax of R10.6m.

“Heinz is generating close to R800m in sales but it’s just above break-even in terms of profitability,” Thompson said.

Joint ventures tend to involve “a lot of royalties, and structuring in the beginning tends to be suboptimal economically”.

Pioneer’s other joint ventures include Bokomo Botswana, Bokomo Namibia and Future Life Health Products.

“We will continue to work with Kraft Heinz to support the expansion of the Kraft Heinz brands in SA,” Pioneer CEO Tertius Carstens said.