PepsiCo has struck a deal to buy South Africa’s Pioneer Food Group for $1.7 billion, the companies announced on Friday, lifting Pioneer’s shares and boosting a sector that has been hit by drought and tough trading conditions.
The U.S. drinks and snack group see Pioneer Foods’ product portfolio as complementary to its own and would help PepsiCo to expand in sub-Saharan Africa by adding manufacturing and distribution capabilities.
“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.
PepsiCo has offered $7.89 per Pioneer ordinary share in what would be its second largest deal since 2010, the companies said, with the news lifting the South African company’s shares by 29.32% to more than 100 rand.
Shares in agribusiness investment company, Zeder Investments, which holds Pioneer as part of its portfolio, also rose more than 22%.
“It’s a vote of confidence in South Africa at a time when we really need it,” Pioneer CEO Tertius Carstens says.
Food producers have struggled amid a slump in retail sales as consumers cut back and dry weather hit maize and other produce.
Pioneer, which uses maize in many of its products, reported a decline in half-year earnings in May, weighed down by shortages in the staple food.
“It’s almost a signal to other overseas companies that we are open for business. If PepsiCo is willing to put money down it may lift sentiment of other foreign investors that might come looking at South Africa for bargains,” said Greg Davies, equities trader at Cratos Capital.
Pioneer, whose brands include Weet-Bix cereal, Liqui Fruit juice and Sasko bread, is the latest consumer goods firm to be the target of a buyout after South Africa’s Clover Industries, which processes products including yoghurt, beverages, and olive oil, began takeover talks with a consortium of companies called Milco SA last year.
Pioneer was in talks over a potential deal with “a multinational organisation” in 2017, but that fell apart after South Africa’s credit rating was cut to junk status.