PEP PepsiCo Inc

By Alexandra Wexler 

JOHANNESBURG -- PepsiCo Inc. has agreed to buy South Africa's Pioneer Foods Group Ltd. for $1.7 billion, as the snack-and-beverage giant looks to build up its business in sub-Saharan Africa.

Pioneer Foods is one of South Africa's largest producers and distributors of branded food and beverage products, and Pepsi said it planned to use that market presence as a beachhead for expansion across the continent.

Pepsi joins a slew of companies from retailers to hotel chains to beer makers that are expanding in Africa. The continent offers businesses the world's fastest-growing population, a number of swiftly expanding economies and a growing middle class.

"We believe that the African continent represents a tremendous growth opportunity," Eugene Willemsen, Pepsi's newly appointed chief executive for sub-Saharan Africa, said in an interview, citing the continent's population and expanding economies.

Pepsi said it would pay 110 South African rand ($7.93) for each Pioneer share, a nearly 42% premium to Thursday's closing price. The stock traded up 32% on Friday.

The deal is Pepsi's second-largest acquisition outside the U.S. since 2010. Last year, the company bought Israel-based SodaStream International Ltd. for $3.2 billion.

Pioneer, which has 22 food and beverage brands, mainly operates in South Africa but exports to more than 80 countries. It reported revenue of about $1.46 billion last year.

Pepsi said Pioneer's products -- especially cereals, juices and other African food staples -- would be a good fit with its existing offerings in the region. Pioneer's brands include Weet-Bix, Liqui-Fruit, Ceres and White Star.

"The portfolios are highly complimentary in nature," Mr. Willemsen said, adding that the focus will be on building up the company's food business across Africa.

Pepsi also sees an opportunity to boost its manufacturing and marketing capabilities. Mr. Willemsen said Pepsi would take advantage of the synergies between Pioneer Foods and Pepsi's wholly owned South African snack-food manufacturer, Simba (Pty) Ltd.

Pioneer's beverage brands are quite well known in sub-Saharan Africa, said John Thompson, an analyst at Investec Asset Management in Cape Town, South Africa. That will give Pepsi a leg up in tapping the growth expected in many African countries, he said. "If you've got that 15- or 20-year view, I don't think you can go too far wrong."

With the acquisition, Pepsi said it would expand its sustainable farming program in Africa and work with local farmers to help boost yields, improve livelihoods, and preserve natural resources.

The deal has been unanimously approved by the boards of both companies, but is subject to approval from Pioneer's shareholders and regulators. The deal is expected to close by the first quarter of 2020.

Write to Alexandra Wexler at alexandra.wexler@wsj.com

(END) Dow Jones Newswires

July 19, 2019 13:17 ET (17:17 GMT)

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