British food ingredients maker Tate & Lyle has entered into an agreement to buy U.S.-based CP Kelco for $1.8 billion (€1.68 billion) from J.M. Huber Corporation, the company said, as it seeks to strengthen its speciality food and beverage solutions businesses.
The proposed transaction is expected to drive revenue growth and an improvement in adjusted core-profit margin over the next few years, the sweetener maker said.
CP Kelco is a provider of pectin, speciality gums and other nature-based ingredients.
Tate & Lyle, one of the world's biggest producers of sweeteners, expects the deal to be accretive to it's adjusted earnings per share, including cost synergies, in the second full financial year following completion of the deal, and strongly accretive thereafter.
'Strategic Transformation'
'Over the last six years, Tate & Lyle has been executing a major strategic transformation to become a growth-focused speciality food and beverage solutions business aligned to attractive structural and growing consumer trends for healthier, tastier and more sustainable food and drink,' Tate & Lyle said in a statement.
'The proposed transaction significantly accelerates Tate & Lyle's strategy to be a leading and differentiated speciality food and beverage solutions business, and to become the solutions partner of choice for customers. It is expected to drive stronger revenue growth and significant adjusted EBITDA margin improvement over the next few years.'
The transaction is expected to close in the fourth quarter of this year.
Complementary Portfolio
"CP Kelco and Tate & Lyle are both highly customer-focused businesses with a shared passion for science and innovation," noted Didier Viala, President, CP Kelco.
"With our complementary portfolio and deep technical expertise, we will bring new value to our customers and new opportunities for our employees. This is an exciting time for our combined businesses."
Analyst Comment
“The scale of the deal announced by Tate & Lyle to acquire fellow ingredients specialist CP Kelco is clearly making some investors nervous," commented AJ Bell investment director Russ Mould. “Getting a deal wrong is often the biggest pitfall for a corporate entity and large deals have a nasty habit of destroying rather than creating shareholder value.
“The deal is being funded through a mixture of debt and existing cash, so there is the potential for some strain on Tate & Lyle’s balance sheet. However, the decision to press ahead with a previously announced share buyback programme is a sign of confidence on this front. A lot will ride on the company’s ability to deliver the cost savings from combining operations and the promised improvements in revenue growth and margins.
“Often a management team overestimates what they can do on this front and ends up disappointing investors. At least Tate & Lyle is buying a business it knows well, having collaborated with it over a long period. That might reduce the risk that it discovers some skeletons in the cupboard when it takes charge.
“Tate & Lyle will hope this transaction will put the enlarged company in a good place to serve a market among food producers looking to make food which is healthier but still tasty enough to fly off the shelves. Areas like ‘mouthfeel’ – literally the way food or drink feels in the mouth – are easy to mock but are undoubtedly considered important in this industry.”
Additional reporting by ESM
