The Competition Tribunal has today issued an order, giving approval to PepsiCo Inc.’s (“PepsiCo”) indirect acquisition of Pioneer Food Group Limited (“Pioneer”), through PepsiCo’s South African subsidiary, Simba (Pty) Ltd.
The merger, one of PepsiCo’s largest acquisitions outside the US, is subject to several public interest conditions.
It is also the first major transaction in which the promotion of a greater spread of ownership in firms -- in particular, by workers and historically disadvantaged persons – is a central issue when assessing a proposed merger under the newly implemented provisions of the Competition Amendment Act.
PepsiCo, known to be one of the world’s largest food and drink companies, owns brands including Pepsi, Lays, Doritos and Gatorade.
Pioneer is one of the largest South African producers and distributors of a range of branded food and beverage products including Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko and White Star.
The conditions that the approval is subject to are summarised as follows:
B-BBEE CONDITIONS
The merging parties have agreed to implement a B-BBEE ownership plan. It will provide for PepsiCo common stock to the value of R1.6 billion to be issued to a South African, broad-based workers’ trust. This holding will be unencumbered and will allow for immediately realisable dividends. The stock in PepsiCo must, after 5 years, be converted into a direct shareholding in Pioneer of up to 13%.
EMPLOYMENT CONDITIONS
There will be no merger-related retrenchments for a period of 5 years. Among others, PepsiCo has committed to grow, over a period of 5 years, the operations of the merged company and to create 500 direct and 2500 indirect employment opportunities in South Africa.
LOCATION OF HEAD OFFICE AND TAX RESIDENCY
The merged company shall remain incorporated in South Africa and will remain a tax resident in South Africa. It will constitute PepsiCo’s new sub-Saharan African sector head office, whose operations will be managed and directed from South Africa.
PRODUCTION
The aggregate productive capacity and capabilities associated with production operations and related facilities in South Africa shall be kept in place. Alongside this, PepsiCo commits to expand the operations of the merged firm in South Africa over a 5-year period to the value of R1 billion, subject to favourable macroeconomic and political conditions.
The merging parties will endeavour to increase the presence and sales of Pioneer Foods brands throughout Africa and internationally, with an initial focus on the Ceres and Safari brands and Rooibos related products. They also undertake to make a cumulative investment of R5.5 billion over a 5-year timeframe in developing the overall operations of Pioneer Foods.
LOCAL SUPPLY CHAINS
The merging parties commit to expanding the Pioneer Foods policy and practice of maximising local production. This shall be achieved by for example introducing the Food Innovation Valleys concept to South Africa, which seeks to be a catalyst for sustainable growth in the agriculture and food supply chain focused on innovation in order to develop sustainable, resource-efficient and trusted food systems, bringing together various stakeholders, including government, academics and industry.
The merging parties have also made several local procurement commitments. These involve, among others, a commitment to annually host a procurement conference or meetings with key local suppliers with the objective of growing, developing and enhancing local procurement and supply, and so that suppliers can meet the quality requirements and other procurement standards of PepsiCo.
DOWNSTREAM AGREEMENTS
The merged company shall maintain all sale and distribution agreements with companies controlled by historically disadvantaged persons and SMMEs for a period of 2 years in line with ordinary business practices.
DEVELOPMENT FUND
The merged company shall make available an aggregate amount of R600 million as a development fund for investment in programmes in South Africa with respect to education, SMMEs, enterprise and agricultural development. Of this fund, R300 million will be invested in developing the capacity of emerging farmers and expanding emerging farmer participation in the supply chain of the merged company; R200 million in education which shall include funding scholarships for historically disadvantaged engineering, agronomy and nutrition science students; and R100 million in SA entrepreneurs as part of an incubator fund.