Shares in Tate & Lyle (TATE) ticked up 2.6% to 782p after the sweeteners-to-ingredients group agreed the $1.3 billion sale of a controlling stake in its lower growth Primary Products business in North America and Latin America to private equity firm KPS Capital Partners.
The deal, which includes the sale of Tate & Lyle’s stakes in the Almex and Bio-PDO joint ventures, will focus the FTSE 250 food producer on the higher growth Food and Beverage Solutions business with opportunities to profit from global consumer demand for healthier food and drink accelerated by the pandemic.
CASH FLOW FROM ‘NEWCO’
In short, the deal creates two standalone businesses; Tate & Lyle, which focuses on faster growing specialty markets, and NewCo, which focuses on plant-based products for the food and industrial markets.
Tate & Lyle and New York-based private equity outfit KPS will each own 50% of NewCo, although KPS will have board and operational control.
Tate & Lyle explained that NewCo will generate ‘significant and steady free cash flow with the ability to pay meaningful dividends over time to Tate & Lyle and KPS’ and stressed it will also benefit ‘from potential value upside’ by retaining a substantial stake in the new standalone business.
Once the deal completes in early 2022, Tate & Lyle plans to return $500 million to shareholders via a special dividend and also undertake a share consolidation.
The remaining sale proceeds will be used to strengthen Tate & Lyle’s balance sheet and invest in accelerating growth.
Tate & Lyle said the break-up would strengthen its attractiveness as a partner to other speciality ingredients businesses, reduce its exposure to commodities markets and bulk ingredients in North America and by bolstering the balance sheet, the sale ‘creates a platform to re-focus capital towards delivering stronger organic and inorganic growth’.
TATE’S NEXT PHASE
‘Today’s announcement represents the next phase in the evolution of Tate & Lyle,’ said CEO Nick Hampton.
‘Our one strong company will become two stronger businesses, both in a position to pursue new and exciting growth opportunities in their respective markets.’
Hampton added that the proposed transaction ‘represents an ambitious and bold step forward for Tate & Lyle. Driven by our purpose, all our people, expertise and investment will be dedicated to growing our global food and beverage solutions business and creating healthier food and drink.’
Shares pointed out that a break-up would serve to highlight the value within Tate & Lyle here.
We also highlighted the resilience the high-quality food producer has exhibited in the face of the pandemic.
Results for the year to March 2021 showed a 6% rise in adjusted pre-tax profit to £335 million, free cash flow increased by £3 million to £250 million, and Tate & Lyle also sweetened the total dividend by 4.1% to 30.8p.
