Tate & Lyle has agreed to sell a controlling stake in its commercial sweeteners business to a US-based private equity firm, in a deal that values the new standalone unit at $1.7 billion (€1.43 billion) including debt.
U.S.-based KPS Capital Partners and Tate & Lyle, one of the world's biggest producers of sweeteners, will each own 50% of the new company, with the private equity firm having operational and board control.
The deal comes after a flurry of private equity interest in British companies, including for supermarket group Morrisons, driven by cheap valuations due in part to the pandemic and Brexit.
Tate & Lyle shares rose 2.6% in morning trade as the company said it would return £500 million (€585 million) to shareholders upon completion of the deal.
Jefferies analysts said details of the split, talks of which were first disclosed by the company in April, were in line with its expectations.
Tate & Lyle will focus on its food and beverage business that makes low-sugar, low-calorie ingredients that go into drinks, soups, sauces and bakery, while the new company will produce plant-based products for food and industrial markets.
The new company will consist of the primary products business in the Americas that makes bulk sweeteners, industrial starches and animal nutrition, and an interest in its Almex and Bio-PDO joint ventures. The smaller European operations would remain with Tate & Lyle, it said.
The company said the deal would see it substantially cut its exposure to commodities markets and bulk ingredients in North America.
The split is expected to complete in the first quarter of 2022 following approval from shareholders and regulators.
'Tremendous Opportunity' For KPS
"KPS believes that Primary Products is a superior investment opportunity and that there is a tremendous opportunity to materially increase revenues, productivity and profitability," commented Michael Psaros, co-founder and managing partner of KPS Capital Partners.
"We look forward to working with the existing Primary Products management team and its employees to build on the great platform they have established and drive future growth.”
"Building on the strong platform established over the last three years, the proposed transaction will transform Tate & Lyle into a purpose-led, global food and beverage solutions business, serving faster growing speciality markets," commented Nick Hampton, Tate & Lyle chief executive.
"With our new focus and a step-up in R&D investment, innovation and solutions development, we will be able to significantly enhance how we serve our customers, and accelerate growth. [...] With the pandemic accelerating the trend towards healthier food, now is the right time to focus our business on capturing this growth."
Commenting on the transaction, analyst Russ Mould of AJ Bell noted that Tate & Lyle "is focusing on the faster growth element of its business and offloading a controlling stake in its lower growth operations. That’s a perfectly logical step to take.
“In doing so, investors may reappraise Tate & Lyle and be prepared to pay a higher multiple of earnings to own the shares. In essence, this is a classic re-rating catalyst.”