![[South Africa] Government, PepsiCo conclude agreement on Pioneer Foods acquisition](Images/Key Logos/pepsico.png)
[South Africa] Government, PepsiCo conclude agreement on Pioneer Foods acquisition
PepsiCo agreed to a ground-breaking worker empowerment deal as part of its acquisition of a South African food company, in a deal that was confirmed by South African regulators.
The agreement between the global food corporation and the South African Government included a raft of public interest conditions on the purchase of Pioneer Foods, one of PepsiCo’s largest foreign acquisitions.
“This deal represents a new benchmark in empowering workers with a share-ownership plan as a result of merger conditions and committing a foreign investor to new job-creation. It is a shot-in-the-arm for business confidence at a low point in the economic cycle and can help to give traction to the economy,” Minister of Trade and Industry, Ebrahim Patel said.
Under the terms of the deal, PepsiCo made commitments to jobs, investment, local empowerment and procurement and agreed that its Sub-Saharan Headquarters would be located in South Africa. Employees in the company would be issued with shares in PepsiCo, worth R1,6 billion (over US$100 million) to be used to finance a 13% stake in the local subsidiary after 5 years. At least one of the Board members would be elected by employees.
The company’s 10 000 employees are protected from any merger-specific retrenchments and PepsiCo agreed to maintain aggregate employment levels at current levels for a 5-year period.
Other terms include a commitment to invest R6.5 billion in the operations in South Africa and create 3 000 direct and indirect new jobs; and set up a R600 million Development Fund to support entry of small-scale farmers in its supply-chain and train young people in new and advanced skills.
PepsiCo, one of the world’s largest snack and beverage companies, announced an offer in July last year to acquire 100% of the shares of Pioneer Foods, one of South Africa’s largest prepared food companies. Pioneer Foods produces a number of well-known South African brands including Sasko bread, Spekko rice, Imbo beans and Ceres Juices. PepsiCo already has a presence in the South African market, through its ownership of Simba, which producers ready-to-eat snacks like Simba chips, Lays, NikNaks and Doritos.
PepsiCo approached the Minister of Trade and Industry, Mr Ebrahim Patel to agree key public interest terms. Under South Africa’s Competition Act, the Minister of Trade and Industry has responsibility for considering the impact of a merger or acquisition on the public interest. This includes how the merger will impact on: employment; small businesses and black-owned companies; specific regions and industries in South Africa; the ability of national industries to compete in international markets; and the levels of ownership by black South Africans and workers in firms in the market.
Following months of discussions, PepsiCo and Government reached agreement on a number of elements to support the public interest. These were submitted to the Competition Tribunal for consideration, who approved the deal on Friday, 6 March 2020, with conditions.
“Though global growth remains subdued, this can be Africa’s moment to accelerate industrialisation, off the back of the African Continental Free Trade Agreement (due to come into effect in July). The commitment to locate PepsiCo’s Sub Sahara African office in South Africa will position South Africa as an important export hub to the rest of the continent. We have seen a steady rise in foreign direct investment into South Africa. FDI over the past two years reached about R150 billion and domestic investors are returning to the market they know best,” Minister Patel said.
“Changes in ownership on their own do not generate new growth and jobs, hence our focus on encouraging investors to expand operations, employment and exports. The public interest conditions attached to large mergers can help to create momentum. Government’s role is to promote investment and protect the national interest, which include those of employees, local suppliers and small businesses. We look forward to working with PepsiCo in implementing the terms of the agreement,” Minister Patel said.
“PepsiCo is pleased that the South African government has affirmed our view that the combined forces of PepsiCo and Pioneer Foods will be a driver of growth for South Africa. Together we will create great value for workers and build a more sustainable and inclusive food system for consumers,” said Eugene Willemsen, Chief Executive Officer of PepsiCo Africa, Middle East, and South Asia. “We believe in the long-term potential of South Africa and view the country as a base for Pan-African growth,” said Mr Willemsen.
Under the agreement, PepsiCo, Pioneer Foods and Simba have together committed the following:
1. Regional Integration and exports: To locate PepsiCo’s Sub-Saharan Africa Head Office in South Africa, and to increase the presence and sales of Pioneer Foods products throughout Africa and internationally;
2. Employment: To maintain the current number of jobs in Pioneer Foods and Simba (covering ±10 000 employees) for a period of five years from closing, and not to retrench employees as a result of the merger at any time in the future. In addition, PepsiCo has committed to increasing employment in Pioneer Foods and Simba by 500 jobs, and will further increase jobs in companies in the supply chain of Pioneer and Simba by 2 500 within five years, unless conditions prevent the planned growth strategy of the company;
3. Investment: To invest R6.5 billion in the productive assets of Pioneer Foods over the next five years to maintain and increase the levels of production, R5.5 billion of which is guaranteed irrespective of the macroeconomic environment, and a further R1 billion committed unless conditions prevent the planned growth strategy of the company
3. Localisation: to maintain and increase the proportion of locally produced key agricultural products used by Pioneer Foods and Simba to produce their products. The company will further replace imported oils with locally produced vegetable oils as it becomes commercially viable, and will use best endevours to replace imported packaging with locally manufactured packaging;
4. Supplier Development: to establish a R600 million development fund which will be used in part to expand the number of black farmers in Pioneer Foods and Simba’s supply chain; to support research and development at South African universities in agro-sciences and provide scholarships to black South Africans in engineering, agro sciences and nutrition; and invest in South African entrepreneurs through an incubator program; and
5. Broad-based Worker Empowerment: to establish a Workers Trust for the benefit of employees in Pioneer Foods and Simba, which will receive R1.6 billion in PepsiCo Inc shares (listed in the US) as a donation within 12 months, and after a period of five years be used to allow the Workers Trust to acquire a shareholding in Pioneer Foods of up to 13%. The Workers Trust will have board representation on the board of Pioneer Foods, elected by employees of Pioneer and Simba.
