COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM200Mar23
In the matter between:
Pioneer Foods (Pty) Ltd Acquiring Firm
and
Future Life Health Products (Pty) Ltd
Target Firm
Approval
[1] On 29 May 2023, the Competition Tribunal (“Tribunal”) conditionally approved the large
merger whereby Pioneer Foods (Pty) Ltd (“Pioneer Foods”) intends to acquire the
remaining 50% of the issued shares in Future Life Health Products (Pty) Ltd (“Future
Life”). Post-merger, Pioneer Foods will be the sole shareholder of Future Life.
Parties to the transaction and their activities
Primary acquiring firm
[2] Pioneer Foods is a South African firm and a wholly owned subsidiary of Pioneer Foods
Holdings (Pty) Ltd, which is a wholly owned subsidiary of Pioneer Food Group (Pty) Ltd
(“PFG”). PFG is wholly owned by Simba (Pty) Ltd (“Simba”), which is in turn, wholly
Panel: Tembeka Ngcukaitobi (Presiding Member)
Fiona Tregenna (Tribunal Member)
Thando Vilakazi (Tribunal Member)
Heard on: 29 May 2023
Order issued on: 29 May 2023
Reasons issued on: 03 July 2023
REASONS FOR DECISION
2
owned by PepsiCo Inc (“PepsiCo”), a listed company incorporated in accordance with
the laws of the state of New York, United States of America.
[3] Prior to the proposed transaction, Pioneer Foods held a 50% shareholding in Future
Life. In addition to this, Pioneer Foods holds interests in several other firms in South
Africa that include Ceres Fruit Juices (Pty) Ltd , Pioneer Foods Groceries (Pty) Ltd,
Pioneer Foods Wellingtons (Pty) Ltd , Alpen Food Company South Africa (Pty) Ltd ,
Bowman Ingredients SA (Pty) Ltd, ButtaNutt (Pty) Ltd, and Two Green Lemons (Pty)
Ltd trading as Barker & Quin.
[4] Pioneer Foods is a producer and distributor of an extensive range of branded food and
beverage products, marketed under the Sasko, Bokomo, Spekko, White Star, Safari,
Moirs, LiquiFruit, Ceres, Nat ure's Source, and Wellingtons brands. Relevant to the
proposed transaction is Pioneer Foods’ business unit , “Foods”, which houses its
breakfast cereals, rusks, baking aids and desserts, as well as its portfolio of condiments
and spreads.
Primary target firm
[5] Future Life is a South African firm, jointly controlled by Pioneer Foods and Mr Paul
Anthony Saad (“Mr Saad”).
[6] Future Life wholly controls one other firm, ISO Foods (Pty) Ltd,[details in relation to the
activities of ISO Foods (Pty) Ltd]
, a daily immune supplement made from a
patented blend of natural plant sterols and sterolins , and used in the production of
Future Life.1
[7] Future Life produces and distributes a range of products under its Future Life brand
throughout South Africa and other surrounding African countries. Mr Saad developed
the original Future Life Smart Food as a healthy, convenient food that contains
Moducare.
1 Merger Record, p98
3
Proposed transaction and rationale
Transaction
[8] In terms of the proposed transaction, Pioneer Foods will purchase 50% of the issued
shares in Future Life . Post -merger, Pioneer Foods will own and control 100% of the
shares in Future Life.
[9] [Description of the respective parties post -merger intellectual property rights]
[10] This current transaction follows from a prior merger in 2015, wher e Pioneer Foods
acquired its initial 50% stake in Future Life. 2 This merger was approved subject to
conditions which stipulated that, for a period of five years post said transaction, the
competitive interactions between Future Life’s cereal products and those of Pioneer
Foods would be maintained. Once these conditions fell away (in 2020), Pioneer Foods
became entitled to exercise the full extent of its joint control over Future Life. This is
important to keep in mind for the context of the structure of the market which is assessed
further below.
Rationale
[11] According to Pioneer Foods, the proposed transaction would allow Future Life to fully
integrate into Pioneer Foods and PepsiCo ’s operational systems and structures.
[Details of post-merger strategy]
[12] [Future Life’s rationale]
2 Pioneer Foods (Pty) Ltd and Future Life Health Products (Pty) Ltd (Tribunal Case Number: LM017May15)
4
Relevant market and impact on competition
[13] The Competition Commission (“Commission”) found a horizontal overlap between the
activities of the merging parties in the production and sale of ready-to-eat cereal
(“RTEC”) products and cereal bars.
[14] The Commission also considered the vertical overlap between Pioneer Foods and
Future Life in that Pioneer Foods produces certain products for Future Life. This will be
expanded on further below.
Horizontal assessment
Product market
[15] The Commission considered the approach taken by the Tribunal in the 2015 Pioneer
Foods/Future Life merger, where the Tribunal considered submissions from the
merging parties, the Commission, and the intervenor, Kellogg. The data placed before
the Tribunal indicated that Future Life's entry into the breakfast cereals market not only
affected porridge cereals like ProNutro , but also took market share from other RTEC
brands such as Kellogg's Corn Flakes and others.3 The Tribunal therefore assessed a
broad market for RTEC that included bran flakes, corn flakes, porridges, biscuits, pre-
sweetened cereals (usually children's cereals), rice puffs, muesli, instant oats, instant
porridge products (including maize and sorghum/maltabela instant porridges) and
cereal bars.
Geographic market
[16] The Commission found that the RTEC market is national in geographic scope , as the
merging parties can supply their customers nationally from their packing facilities ,
irrespective of the distance between the plant and the end destination given the long
shelf-life and non-perishable nature of RTECs.
3 Merging parties Joint Competitiveness Report, para 9.2.3 (Merger Record, p65)
5
[17] Having regard to the above and without concluding on a relevant market , the
Commission therefore assessed the competitive effects of the proposed transaction in
the national RTEC market.
Horizontal impact
[18] The Commission found that, in isolation, Future Life is a relatively small player, with a
market share of [1-10%] in the South African RTEC market based on total RTEC
sales value. Pioneer Foods is the market leader with a market share of [25-35%] ,
and Kellogg and Tiger Brands follow with market shares of approximately [15-25%]
and [10-20%] respectively.4
[19] The merging parties therefore have a combined market share of [30-40%]
Pioneer Foods already enjoys this market share by virtue of its 50% joint shareholding
in Future Life . As such, t he Commission found that the proposed transaction is
therefore unlikely to alter the structure of the market in the national RTEC market post-
merger as Pioneer Foods already currently enjoys joint control over Future Life.
[20] The Commission found that there are several players active in the RTEC market which
include Kellogg and Jungle (amongst others) that will continue to constrain the merged
entity post-merger.
Vertical assessment
[21] As mentioned above, the Commission found that Pioneer Foods supplied Future Life
with manufactured product s. [manufactured products listed]
.5
[22] In addition, Pioneer Foods supplies Future Life with inputs and raw materials that
include [list of specific inputs and raw materials]
This
4 Market shares based on Nielsen June 2022 Total Cereal and Bars Market Review, by brand, on a 24-month
average from 2020-2022.
5[Additional details in relation to Future Life’s procurement of products from Pioneer Foods]
(Merger Record, p96 footnote 108)
6
integration was one of the features of the initial (2015 ) Pioneer Foods/Future Life
merger.6
[23] The merging parties submitted in this regard that Pioneer Foods will continue to supply
Future Life with inputs and raw materials, as well as manufacture d products post -
merger.
[24] Furthermore, the merging parties have stated that [statement in relation to Pioneer
Foods post -merger procurement agreements] “
”.7
[25] The Commission took into account the fact that this relationship predates the proposed
merger, and therefore, a change in incentives which could result in foreclosure of RTEC
manufacturers is unlikely.
[26] As regards customer foreclosure, the merging parties submitted that Future Life is not
a substantial purchaser of the inputs that will be supplied or procured by Pioneer Foods
and its current suppliers serve a broad range of customers whose demand for and
purchase of those inputs will not be affected by the transaction.
[27] Having regard to the above, the Tribunal concurs with the Commission’s conclusion that
the proposed transaction is unlikely to substantially prevent or lessen competition in the
relevant market.
Public interest
Employment
[28] The merging parties have provided an unequivocal undertaking that the proposed
transaction will not result in any negative employment effects.
[29] Concerns were raised by the Agricultural Food and Allied Democratic Workers Union
(“AFADWU”) who represent employees of Pioneer Foods that included inter alia,
whether the proposed transaction of Future Life is intended to be as a going concern in
6 Merger Record p95 paras 21.17-21.18
7 Merger Record p96 para 21.20
7
terms of section 197 of the Labour Relations Act, 66 of 1995 (“LRA”), as well as whether
there would be a moratorium on retrenchments.
[30] The Commission noted that Pioneer Foods is acquiring the remaining 50%
shareholding in Future Life, and the proposed transaction does not entail a transfer of
business and therefore, section 197 of the LRA does not apply.
[31] The Commission considered the evidence that the proposed transaction does not
change the underlying business or lead to negative employment effects, and as such,
a moratorium on retrenchments may not be warranted.
[32] Furthermore, employees at Pioneer Foods that are not represented by a trade union
stated that they do not have any concerns with the proposed transaction.8
[33] Employees at Future Life are not represented by a trade union. The employee
representatives of the head office and the factory have not raised any concerns with the
proposed transaction.9
[34] The Commission stated that it has not found any evidence that the proposed transaction
is likely to result in a negative effect on employment.
[35] Considering the above, and that the merging parties have provided an unequivocal
statement that no job losses will arise as a result of the proposed transaction, the
Tribunal agrees with the Commission’s findings that the proposed merger is unlikely to
have an adverse effect on employment.
Spread of ownership
[36] Pioneer Foods and Future Life do not have any shareholding by historically
disadvantaged persons (“HDPs”).
[37] In the Simba/Pioneer Foods 10 merger, the merging parties agreed to implement a
Broad-Based Black Economic Empowerment ( “B-BBEE”) ownership plan through the
introduction of a workers trust with the trustees of the trust being selected from
employees, with HDPs and women being prioritised in the selection process.
8 Merger Record p1236 and p1228
9 Merger Record p1239-1240
10 Simba (Pty) Ltd and Pioneer Food Group Limited (Tribunal Case Number: LM108Sep19)
8
[38]
PepsiCo thus established the Bašumi Trust (Bašumi Employee Share Scheme
(“BESS”)).
All qualifying permanent employees of Pioneer Foods and Simba, including
the employees of wholly owned subsidiaries of these firms, are entitled to participate in
BESS.
[39]
BESS has the right to exercise the equivalent of 12.9% of the voting rights in Pioneer
Foods, the primary acquiring firm in the instant transaction.
[40]
Qualifying e
mployees of Future Lif
e
will become entitled to participate in the BESS trust.
Based on Future Life's current employee numbers,
[figure]
permanent
employees of Future Life will qualify to participate in the Workers Trust once they meet
the 12 consecutive month employment duration criterion.
11
This has been made a
condition to the approval of the proposed transaction
as follows:
“
The Acquiring Firm will
ensure that all Workers of Future Life who meet the Workers
Trust Qualification Criteria will be invited to participate in the Workers Trust within 3
(three) months of the relevant Worker meeting the Workers Trust Qualification Criteria.”
[41]
The Commission found that the proposed transaction does not raise any other public
interest concerns, and the Tribunal concurs.
Conclusion
[42]
Considering the above, the Tribunal concludes that the proposed transaction is unlikely
to substantially prevent or lessen competition in any relevant market.
The proposed
transaction has been approved subject
to the abovementioned public interest
conditions. The imposed conditions are annexed hereto as Annexure “A”
.
03 July
2023
Tembeka Ngcukaitobi
SC
Date
Concurring: Prof
.
Fiona Tregenna
and
Dr Thando Vilakazi
Tribunal case manager:
Leila Raffee
11
Letter from the merging parties to the Commission dated 19 April 2023 (Merger Record p1208
-
11)
9
For the merging parties: Leana Engelbrecht and Nick Altini of Herbert Smith
Freehills South Africa LLP
For the Commission: Nolubabalo Myoli and Grashum Mutizwa