Pepsico has offered R110 ($7.89) a share – a premium 56% over Pioneer Food’s last closing price – to acquire it. Pioneer is a leading South African food manufacturer whose brand portfolio includes Weet-Bix and Bokomo (cereals), Liqui-Fruit and Ceres (fruit juice), Sasko (baked goods), Spekko (rice), and White Star (maize meal).

The transaction is subject to a Pioneer Foods shareholder vote and regulatory approval. It is expected to close in Q1 of 2020. PepsiCo aims to use the acquisition as a springboard for its sub Saharan African growth strategy. As part of the acquisition, PepsiCo will create a new operating unit for sub Saharan Africa headed by a veteran PepsiCo emerging markets specialist, Eugene Willemsen.

PepsiCo already operates in South Africa, where its snack brands such as Simba, Nik Naks, Lays, Doritos and the Pepsi carbonated soft drinks brand are present. As well as a range of brands in cereals and grains, baked goods and soft drinks, the acquisition will give PepsiCo manufacturing facilities in South Africa, Nigeria (where Pioneer Foods has two bakeries) and Kenya. In the context of Kellogg’s’ $420m+ 2018 investment in Nigeria’s Tolaram Foods, we think PepsiCo’s acquisition looks like good value.

In May 2019, shares in Pioneer Foods dropped to their the worst level since March 2013 after the company said earnings fell in the six months to the end of March as costs rose outstripped sales. However, revenue was up 12% to R11.04bn ($790m) – a tempting prospect for a large multinational capable of leveraging its scale to manage costs more effectively and on the hunt for a solid footprint in Africa. The offer price of R110 ($7.89) a share compares very favourably with Pioneer’s 2015 highs of more than R210 a share.