Food ingredients maker Tate & Lyle has confirmed that it is exploring the sale of a controlling stake in its commercial sweeteners unit, in order to separate it from its food and beverage solutions arm as the company seeks to focus on healthy products.
'Tate & Lyle notes recent media speculation and confirms that it is in the process of exploring the potential to separate its Food & Beverage Solutions and Primary Products businesses through a sale of a controlling stake in its Primary Products business to a new long-term financial partner,' the company said in a statement.
Tate & Lyle, one of the world's biggest producers of sweeteners such as high fructose corn syrup, said earlier this year it expects modestly higher annual profit, partly due to demand for its food and beverage solutions in North America.
The company recently announced the launch of a digital nutrition centre.
Early Stage Discussions
The company said discussions with potential new partners for the Primary Products business are at an early stage. The food and beverage solutions unit makes texturants, stabilisers and low-calorie sweeteners.
'Tate & Lyle continues to successfully execute its strategy and remains confident in the future growth prospects of the company,' it said. '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.'
It plans to make a further announcement on this development 'when appropriate', it added.
"The devil will be in the detail of how to achieve operational separation, as well as minimising stranded cost and tax leakage," Jefferies analysts said in a note on Sunday.
Analyst Viewpoint
Commenting on the planned move, analyst Russ Mould of AJ Bell said, “It is becoming increasingly fashionable to break up large businesses, particularly those with conglomerate structures. 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.
“These 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.
“Tate & Lyle’s potential move to sell a controlling stake in its artificial sweeteners and industrial starches arm could mean it 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."
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