A SA food giant - owner of Sasko, Spekko and Liqui-Fruit - is in talks. Here's what may be going on

Business Insider SA
pioneer foods
Some of the Pioneer Foods brands.
  • Pioneer Foods on Monday morning released a cryptic cautionary that it has started negotiations which could impact its share price.
  • Analysts share various theories with Business Insider about what may be going on, including that Zeder could unbundle its shareholding in Pioneer.
  • But Pioneer, who has long wanted to do an acquisition, could also be planning to buy another company - or be a target itself.
  • For more stories, go to Business Insider SA.

On Monday morning, one of SA’s biggest food producers, Pioneer Foods, announced that it has entered into negotiations, which could impact its share price. Pioneer owns brands like Sasko, Spekko, White Star, Weet-Bix, Ceres and Liqui-Fruit – and  in the past six months sold more than R11 billion in products.

Here’s what may be going on:

Zeder may be planning to unbundle its stake in Pioneer

Along with interests in agricultural producers like Capespan and Kaap Agri, PSG-controlled Zeder owns 27% of Pioneer.

Its stake in Pioneer represents almost half of Zeder’s market value – but this investment has not been doing well of late.

Since 2017, the value of Zeder's stake in Pioneer has halved – from R9.5 billion to almost R4.7 billion at the end of February this year. Pioneer’s profitability has been under pressure as struggling South African households curb their spending on groceries, as well as the impact of high fuel,  and other input costs. Its share price is down more than 40% from its peaks in the past year.

Pioneer Foods

Pioneer’s plunging value has hit investors in Zeder as well – its share price lost a third of its value over the past year.

Following the recent poor performance in Zeder, the announcement currently points towards an unbundling or related transaction, one fund manager, who wanted to remain anonymous, told Business Insider. 

Impatience with Pioneer must be growing, he believes. PSG used to charge Zeder steep management fees, which amounted to R155 million in a single year in 2016. Then, in exchange for halting the fees, Zeder issued shares to PSG, which increased its stake from 34.5% to 42.1% in 2016.

Gryphon Asset Management analyst Casparus Treurnicht said “The shares were seen as a once-off payment for services in the years to follow. The transaction obviously did not deliver as expected.  A passive shareholding in Pioneer was obviously not worth their management charge."

“I agree with rumours that it’s probably best for Zeder to unbundle and then start measuring performance on the true active portfolio going forward.”

Zeder's share price

Zeder’s share price jumped more than 3% on Monday morning, while Pioneer Foods dipped half a percent.

Pioneer may be planning to buy a company outside of SA

In 2017, Pioneer abandoned plans to buy a foreign company after a slew of credit rating downgrades hit South Africa, and the rand. According to a Business Day report, Pioneer was considering an acquisition in Eastern Europe.

According to a JP Morgan research note, Pioneer has wanted to acquire a “sizeable branded” consumer goods business for some time, but didn’t want to add on too much more debt. To achieve this, it won't be able to buy a company worth more than R2 billion.

“With that in mind, we think it is likely that another African acquisition is most likely. However, management had stated that their immediate focus was on fixing the South African business which was under pressure from multiple angles,” says JP Morgan.

“Fast-growing Eastern Europe presents possible opportunities outside SA but we note that existing producer relationships with retailers and Pioneer Foods’ ability to leverage these relationships would be a key consideration for any acquisition.”   

Or Pioneer itself could be a takeover target

Pioneer Foods is trading at a price-earnings ratio of 13.77 times. (The price earnings ratio calculates  what investors are willing to pay for a rand of the company’s profits.) Its average PE over the past five years was 16.8x – which shows that it is currently at relatively cheap levels.

In its analysis, JP Morgan says Pioneer foods “screens well as an acquisition target”, and that any takeover offer will probably come from an overseas buyer.

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