Pioneer soars on PepsiCo deal
● Pioneer’s share price surged 30% on Friday after it announced PepsiCo would buy it for $1.7bn (R23bn), a deal the US multinational drinks and snacks company says will help it to grow its business in Africa.
But the sharp gain in Pioneer Foods share price on Thursday — ahead of the announcement on Friday morning — may spark a JSE probe.
Shaun Davies, director of market regulation at the JSE, said the division will be reviewing trading activity in Pioneer Foods shares ahead of the price-sensitive announcement as part of the division’s routine surveillance activities. He said a cautionary announcement the company issued on Monday and reports that a deal was in the pipeline may have contributed to share price movement on July 18.
But if trading in Pioneer Foods shares warrants further investigation, “we will refer those transactions to the Financial Sector Conduct Authority”, as is done normally.
Pioneer Foods produces branded food and beverages such as Ceres juice, Spekko rice and Bokomo cereal.
Pioneer Foods CEO Tertius Carstens said the company had been in talks with PepsiCo for a “couple of months”. He would not confirm whether PepsiCo was the multinational Pioneer was negotiating with in 2017 — a deal that was called off at the last minute after SA’s credit rating was downgraded.
Carstens said: “That’s for them [PepsiCo] to deny or admit, I can’t comment on that.” PepsiCo declined to comment.
Just before the 2017 deal was cancelled, Pioneer’s share price was at R176.75. On Friday its share price closed at over R102.
PepsiCo is paying a 56.5% premium on a R70.31 share price agreed to by the parties.
Bright Khumalo, a portfolio manager at Vestact, said :“I think the price is also pretty good for them because you’ve seen Pioneer Foods Group grow to highs of over R200. It’s definitely a bargain and whoever is doing the deal knows what they are doing.”
He said the deal was “a vote of confidence for South African corporates”.
PepsiCo and Pioneer previously worked together in 2004 and 2005 when Pioneer was PepsiCo’s soft drink franchisee in SA.
In SA, PepsiCo sells 7UP and Pepsi, and Simba and Fritos. In a statement on Friday, PepsiCo said: “Pioneer Foods allows us to immediately scale our business in Africa.”
Norman Celliers, CEO of Zeder Investments, which has a 28.23% stake in Pioneer Foods, said: “For Zeder the proposal, if fully implemented, represents approximately R6.4bn in cash, with which the company plans on settling or reducing its debt and potentially declaring a special dividend.”
Lester Davids, a trading desk analyst at Unum Capital, said: “It’s a good deal for shareholders, it gives them an opportunity to get out at a great premium relative to the recent share price.”
Davids said whether PepsiCo’s strategy in Sub-Saharan Africa would be a success remained to be seen, but urbanisation, which comes with higher incomes, could be an advantage for PepsiCo in the long term.