Shares in Tate & Lyle (TATE) were among the top FTSE 250 risers on Monday, sweetening up 7% to 807.5p after the famous food producer confirmed it is considering a separation of its Food & Beverage Solutions and Primary Products businesses in a deal it says would deliver ‘enhanced shareholder value’.
Responding to media speculation surrounding a possible split, Tate & Lyle explained the separation may be effected through the sale of a controlling stake in the Primary Products business to a new long-term financial partner, with the company thought to be in talks with US private equity firms.
DOING THE SPLITS?
It is becoming increasingly fashionable to break up large businesses, particularly those with conglomerate structures, and a sale would enable Tate & Lyle to focus on a Food & Beverage Solutions business with positive momentum that is increasingly purposed towards the delivery of healthier food and drink with less sugar.
For the uninitiated, Tate & Lyle’s Food & Beverage Solutions business develops solutions which reduce sugar, calories and fat, add fibre, and provide texture and stability in categories including drinks, dairy, bakery, soups, sauces and dressings.
Generating the bulk of group sales, the US-focused Primary Products division produces nutritive sweeteners, industrial starches used in paper and packaging, acidulants as well as products used for animal nutrition.
In today’s brief statement, Tate & Lyle insisted it ‘continues to successfully execute its strategy and remains confident in the future growth prospects of the company.
However, the board believes that if a transaction of this nature was completed it would enable Tate & Lyle and the new business to focus their respective strategies and capital allocation priorities and create the opportunity for enhanced shareholder value.’
Tate & Lyle cautioned that discussions with potential new partners in the Primary Products business are ‘at an early stage’ and therefore ‘there can be no certainty that a transaction will be concluded’.
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, explained: ‘Private equity companies are sitting on large amounts of cash and they are becoming more creative with deploying those funds to make future returns. Rather than making outright acquisitions, buying parts of businesses can be a good move as it can unlock hidden value.
‘There are quite a few companies like Tate & Lyle which have fingers in many pies. While they might be making good money, splitting a business into different parts each with separate management can see a tighter focus and ultimately even stronger gains.’
Mould added that the sale of a controlling stake in its artificial sweeteners and industrial starches arm could mean Tate & Lyle ‘gets a cash injection that can be used to pay down debt and reinvest in the business to make it more competitive, as well as the ability to focus more attention on its food and beverages arm.
‘Keeping a minority stake in the sweeteners arm would also mean it benefits from any upside and provides an option to sell that holding at a future date, potentially for an even greater price than if it had sold out completely in one go.’
RESILIENT OPERATOR
Tate & Lyle has proved a resilient performer during the Covid crisis and is well positioned to grow with large food and beverage customers as the global economy reopens.
It is also well aligned with current trends towards sugar reduction and also provides plant-based ingredients and solutions to customers, enabling it to profit from the boom in demand for plant-based proteins.
In recent months, Tate & Lyle’s has acquired stevia sweetener solutions business Sweet Green Fields and snapped up an 85% stake in Thailand-based tapioca maker Chaodee.
