The companies on Friday issued a joint statement indicating PepsiCo will acquire all outstanding shares of Pioneer Foods at R110 per share.
The deal signals PepsiCo's confidence in a region where food companies have faltered in the face of weak consumer spending and adverse weather conditions, factors which have weighed on Pioneer's earnings this year, Reuters reported.
In addition to expanding PepsiCo's reach, the acquisition gives the company "a portfolio of well-established local brands - including well-known, scaled brands like Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko and White Star - providing [PepsiCo] with a significant runway of locally-relevant products", according to analysis from Wells Fargo. Fast food brands like KFC and beverage companies like Coca Cola have seen massive gains in the market, entrenching themselves, often at the exclusion of other leading American and European companies.
The US food and drinks company has offered 110 rand per share in cash for each Pioneer share, which represents a 56% premium to the 30-day volume weighted average price prior to the cautionary announcement on 15 July.
PepsiCo also confirmed that it meant to support Pioneer Foods' black economic empowerment programme. Pioneer Foods forms an important part of our strategy to not only expand in South Africa, but further into sub-Saharan Africa as well.
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"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.
While Pioneer exports to a host of countries, most of its operations are in South Africa.
He added that while investors should not necessarily "rush out and buy a whole lot of South African labels", deals like the PepsiCo and Pioneer transaction "make ideal sense".
Meanwhile, as part of this transaction and PepsiCo's goal to become more locally focused, the company will create a new operating subsidiary for sub-Saharan Africa, named PepsiCo SSA.
PepsiCo sub-Saharan Africa will be led by Eugene Willemsen, formerly PepsiCo's Executive Vice President of Global Categories & Franchise Management.