Is Pioneer Foods on top of KWV?

Is Pioneer Foods on top of KWV?

What would the synergies be should Pioneer Foods, South Africa’s second largest food company, purchase KWV Holdings, the country’s second largest wine and spirit company?

For a start, the two companies, which both have an agricultural base, have their head offices in Paarl in the Western Cape and the majority of both of their operations are in the same region. They even share a number of directors. Indeed, KWV's chairman, Thys du Toit, was appointed to Pioneer's board back in March this year.

At the same time, KWV’s spacious head office is under-utilised and would make the ideal HQ for Pioneer, which at present is shoehorned into a small complex in the town.

Pioneer, which produces and distributes Pepsi in South Africa, might also be interested in KWV’s 22-hectare Paarl cellar complex, with storage warehouses that could easily be adapted for food production or to house other aspects of Pioneer’s business. The site also benefits from easy access to the N1 highway to Cape Town and the main Johannesburg – Cape Town railway line passes straight past it.

For KWV, meanwhile, there is the appeal of the vast distribution network Pioneer already has in place across South Africa for its food brands. That it handles Pepsi in South Africa and already owns the country's largest juice company, Ceres Fruit Juices, which it bought KWV's stake in back in 2004, proves that Pioneer also has a wealth of experience in the South African beverage industry.

While Pioneer confirmed earlier this week that it has approached KWV “with the view to possibly acquiring” the wine and spirits firm, it is still early days. According to Pioneer’s CEO, André Hanekom, the company is investigating how beneficial such a transaction could be. “We are looking at whether costs can be cut, efficiencies reached, long-term value added and growth potential,” he said earlier today.

Once the initial studies have been completed, regulatory approval has to be obtained through the competition commission, as well as the two firms finalising a fair and reasonable price per share. Should all this progress according to plan, Hanekom said he does not see the deal completing before April next year.

On paper, a tie-up looks like a win-win. But, there are several hoops to jump through yet.

One final point to note: No longer in the picture would be the former KWV Investments, now called Capevin Investments, the owner of half of the Remgro-KWV Investments, which holds a 58.4% interest in South African wine giant Distell Group.