PepsiCo Inc. (PEP.O) is making the most of cheaper South African valuations in its US$1.8 billion swoop for Pioneer Foods Group Ltd., analysts and investors said.
And while the takeover offer is opportunistic, the premium of about 56 per cent is also attractive to investors, who saw Pioneer shares slump to the lowest since 2013 before bid speculation emerged, they said.
“No one knows how long this downturn was going to last, or how long it would take the share price to go back to 110 rand, which is what PepsiCo is offering,” said Peter Takaendesa, a money manager at Cape Town-based Mergence Investment Managers.
Less than three weeks ago, Pioneer was trading at 68 rand, the lowest since March 2013. The stock jumped by a record 31 per cent Friday, pulling biggest shareholder Zeder Investments Ltd. up 23 per cent, while sector peer Tiger Brands Ltd. gained as much as 6.5 per cent.
Here’s more of what analysts and investors are saying:
Michele Santangelo, a money manager at Independent Securities
- The premium offered is certainly attractive to Pioneer shareholders. The offer is also opportunistic given that the share price of Pioneer has been trading at levels last seen in 2013.
- The offer has highlighted that there is value in the South African market and those with capital looking for expansion are taking notice.
Henre Herselman, a derivatives trader at Anchor Private Clients
- The fact that PepsiCo are paying such a premium sends the message that they are quite keen to get this deal done.
- It’s great to see some investment interest in South African shares. But on the other hand, I have to ask the question: are the foreign entities buying out the last South African gems and externalizing the earnings?
Takaendesa at Mergence
- There is a lot of margin pressure between Pioneer and Tiger Brands because of the aggressive competition in the sector, and because the companies cannot recover input costs from the weak consumer. Overall, from that point of view, it is a good deal for Pioneer shareholders.
- This is a small transaction for PepsiCo from a size point of view, and if they are comfortable to take a long-term view, they will get value for money.
- The company has been impacted by the cyclical downturn in the overall economy that has affected the share price, but the market structure has not changed significantly.
- Pioneer and PepsiCo have worked together before, and PepsiCo knew the business, and that may have been the attraction for the deal.
- I don’t think it will be a full-on investor deluge into South Africa, but this does send a good message out there that there are good companies in South Africa and they present a huge opportunity for people to come in and get good businesses at cheap prices.