Glenboden M & A Originations

Tate & Lyle readying itself for more ingredients acquisitions after divestment in Canada

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Origination Status company divestment agreement signed, February 2007;
Asset Tate & Lyle Canada Ltd (‘Redpath’), packaged cane sugar producer in Canada;
Buyer American Sugar Refining Inc (USA), New York –based packaged sugar producer;
Seller Tate & Lyle plc (UK), leading international renewable foods and industrial ingredients producer;
Buyer Rationale increased scale, brand acquisition, expansion in Canadian market;
Seller Rationale part of programme to refocus business on value-added businesses, debt reduction;
NBs valuation also expressed as P /NAV of 1,6.
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With its mission to focus on value-added products, Tate & Lyle is gradually disassociating itself from its historical packaged sugar identity. It’s tagline now includes the term ‘renewable ingredients’, and the company defines itself as a ‘leader in cereal sweeteners and starches, sugar refining, value-added food and industrial ingredients, and citric acid’. After this deal, one option for the group is to downsize into a pure-play value-added ingredients player, divest its remaining packaged sugar brands, and make further acquisitions in the ingredients category globally.

Redpath is one of four refiners and packers of sugar in Canada, and a recognised brand in that market. It booked a 10% operating margin in 2006, and its underlying business is described by Tate & Lyle as ‘stable’. So, it’s an attractive business by packaged sugar standards, which possibly makes the valuation look like quite a bargain. On the other hand, there no real growth or value-added story in packaged sugar. Moreover, Redpath made up more than 50% of the sales of Tate & Lyle’s ‘Sugars, Americas and Asia’ business, a division which constitutes only 7% of the group’s total sales and 4% of its operating profit; so, this deal could be described as an exit from a non-core business.

As for future deals, Tate & Lyle has declared that it’s looking to divest its underperforming European starch and cereals businesses. But wouldn’t it be better to downsize into a pure-play value-added ingredients player, and exit the packaged sugars business entirely? European sugars make up 39% of Tate & Lyle’s total sales, but only 13% of its operating profit; and yet the group seems determined to keep investing in it. The main brands would attract buyers, and the proceeds could help fund Tate & Lyle’s R&D into the renewable ingredients of the future.

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Size (€ mln) 200
Sector packaged sugar
Asset Quality Canada branded
Seller large plc
Buyer co-operative
P/S 0,75
P/Ebitda 5,3
Type business unit
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