Tribunal approves the R24bn PepsiCo-Pioneer merger

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The Competition Tribunal has approved the R24 billion PepsiCo-Pioneer takeover, it announced on Friday afternoon.

The merger is one of PepsiCo’s largest acquisitions outside the US and it’s also the first major transaction in which ownership by workers and historically disadvantaged individuals was the central determinant in getting the deal approved, said the Tribunal.

The issue of voting rights by South African employees took centre stage when the companies and the Department of Trade and Industry argued for the approval of the merger before the Tribunal on Thursday. The two companies put forward a proposal which would see employees benefit from a share scheme and earn dividends which satisfied an initially concerned Department of Trade and Industry.

Pioneer, one of the largest producers in South Africa, counts brands like Weet-Bix, Liqui-Fruit, Sasko, and White Star under its banner. The company is currently owned by the PSG Group.

PepsiCo, on the other hand, consists of six divisions which manufacture and distribute snacks and beverages that are already available in South Africa including Simba, Nik Naks, Lays, Doritos and Pepsi soft drinks. Pioneer Foods’ acquisition will be facilitated through PepsiCo’s South African subsidiary, Simba (Pty) Ltd.

The Tribunal said it approved the merger subject to "public interest" conditions including the implementation of a broad-based black economic empowerment (B-BBEE) ownership plan.

Under that scheme, PepsiCo will issue R1.6 billion of its ordinary shares to broad-based trust belonging to Pioneer Foods’ South African employees.

"This holding will be unencumbered and will allow for immediately realisable dividends. The stock in PepsiCo must, after five years, be converted into a direct shareholding in Pioneer of up to 13%," said the Tribunal when listing its conditions.The Tribunal also said there should be no merger-related retrenchments for a period of five years. Instead, it said the approval is based on PepsiCo committing to expand its production facilities and operations in South Africa by R1 billion over a 5-year period, subject to favourable macroeconomic and political conditions.

"PepsiCo has committed to grow, over a period of five years, the operations of the merged company and to create 500 direct and 2 500 indirect employment opportunities in South Africa," added the Tribunal.

Among other conditions, Pioneer and PepsiCo must maintain all sales and distribution agreements they have with historically disadvantaged individuals and companies for at least 2 years and contribute R600 million to creating "a development fund" for SMMEs, enterprise and agricultural development as well as education in South Africa.

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