CORPORATE FINANCE CASE STUDY MEMO QUESTION ONE (20 Marks) PepsiCo's South African acquisition given green light by local competition watchdog By Gill Hyslop 13-Feb-2020 - Last updated on 13-Feb-2020 at 15:50 GMT PepsiCo has been given the nod by South Africa's Competition Commission to purchase Pioneer Foods. Pic: Pioneer Foods The South African Competition Commission has found that PepsiCo's R24bn ($1.7bn) acquisition of Pioneer Food Group will result in 'significant public interest benefits for the country. Simba (Pty) Ltd -a South African-based wholly-owned subsidiary of the US snacking giant - gave notice last July of its intention to buy Pioneer, in a deal touted as one of PepsiCo's largest acquisitions outside the US. According to Sipho Ngwema, head of Communication for Commission, the significant benefits for South Africa' also includes the additional transfer of at least R1.6bn ($108m) into a black empowerment fund to promote a greater spread of ownership and participation by workers (and) historically disadvantaged South Africans'. PepsiCo is also required to create additional positions at the merged company, place a moratorium on merger-related job cuts for a certain period, invest in the operations of the merged entity and the country's agricultural sector. Given the nod "The proposed transaction, which will result in significant public interest benefit for South Africa including the transfer of at least R1.6 billion in equity to workers, is unlikely to result in a substantial prevention or lessening of competition in any relevant markets," the Competition Commission said in a statement. PepsiCo -through Simba - supplies its ready-to-eat snacks to the South African market under the brands Simba, Lays, Doritos, Nik Naks and Fritos. Pioneer Foods which operates mainly in South Africa, but also exports to more than 80 countries - manufactures an extensive range of foods, including cereals, flour, maize meal (known as mielie meal in South Africa) and fruit juices, among others, under the brands Sasko, White Star, Weetbix, Safari, Wellingtons, Ceres, Liquifruit and Fruitree. The proposed deal has seen Pioneer's shares rise and will certainly boost a sector that has been hit by drought and tough trading conditions. The Commission has recommended the Competition Tribunal - which makes the final decision - to approve the merger. A tribunal hearing is expected to take place before the end of February Required: In light of the article above, you are required to answer the following questions: 1.1 Differentiate between a merger and an acquisition. (4 Marks) 12 Mergers are often categorised as horizontal, vertical or conglomerate. Explain each of these type of mergers in detail (7 Marks) 1.3 PepsiCo can acquire Pioneer Foods voting share by purchasing all or part of the shares, in exchange for cash or other securities. Alternatively, a PepsiCo can also effectively acquire Pioneer Foods by buying most or all of its assets. Based on the information provided above, you are required to: 1.3.1 Identify four advantages of acquiring a company by buying shares in that company. (4 Marks) 1.3.2 Provide an argument in favour of purchasing assets to acquire another company