Tate & Lyle leaders outline potential company split

Dive Brief:

• Tate & Lyle’s recent success and financial strength bolsters the possibility that it will split its business into two entities: Food & Beverage Solutions and Primary Products, CEO Nick Hampton said in a conference call with investors following the company’s annual report last week.
• The transaction, if it happens, would come through an outside investor buying a majority stake in the Primary Products business. Hampton said there have been ongoing conversations and plans for a sale, but there is nothing that can be announced at this time.
• Tate & Lyle first announced the potential split in April, issuing a press release that responded to media reports speculating the company was seeking to sell its largest division. The April press release says the company’s board felt this sort of sale would allow each business to focus on its own priorities and create opportunities for shareholder value.

Dive Insight:

Tate & Lyle has been working toward this point since its Capital Markets Day presentation in 2018, when the British sweetener and ingredient company clarified its new strategic priorities in both the Primary Products and Food & Beverage Solutions segments. 

While the two business units are owned by the same company, they represent different opportunities. The Primary Products business — which includes sweeteners such as high fructose corn syrup, corn syrup and dextrose; citric, malic and fumeric acids and products for animal feed, paper and packaging — already has a strong market. It’s primarily focused on North America, serves established markets that are difficult for newcomers to break into, and has a good return on capital and cash generation, the 2018 presentation says. In a February presentation, the company defined this division as high volume and largely undifferentiated ingredients that compete primarily on quality, service and price. 

Food & Beverage Solutions is the division that produces Tate & Lyle’s newer ingredient innovations, including sugar and calorie reduction, adding fiber and texture, and stabilization. It serves the entire globe, with about 75% of its 2018 sales in global focus categories of soups, sauces and dressings, beverages and dairy. This division, the company identified in 2018, has growth potential in the newer and trendier areas of food and beverage.

Tate & Lyle has also recently made two acquisitions to bolster the Food & Beverage Solutions division: the December purchase of stevia producer Sweet Green Fields and October deal for an 85% stake in Thailand-based tapioca maker Chaodee Modified Starch. Both deals bring new options to Tate & Lyle’s ingredients portfolio, both in terms of ingredients and function as well as sources. Hampton said these acquisitions are integrating well into the larger company.

The two divisions saw different kinds of sales growth and have varying economic outlooks as well. In the year ending March 31, the Primary Products division’s revenues were down 2%, which the company attributes to impacts from the COVID-19 pandemic. Still, the division’s total revenues were nearly 1.7 billion pounds ($2.4 billion). Food & Beverage Solutions, benefiting from global health and clean label trends, saw its revenue grow 6% to 970 million pounds ($1.4 billion).

Considering that so much effort has gone into making this demarcation, as well as the fact that company leaders dedicated a significant amount of time during their earnings call to talk about it, the deal is likely moving forward at a good pace. During the call, Tate & Lyle CFO Vivid Sehgal also mentioned that the bulk of a 19 million pound ($26.9 million) charge on the company’s balance sheet was for professional fees to explore the separation of the two businesses. Following questions from analysts, Hampton said Tate & Lyle wanted to know exactly how a potential separation would work, even before beginning negotiations for a sale. The company has “practical solutions that could work” for how plant ownership and operation would split and how supply chain agreements would work out.

Hampton touted the possibilities that could come from more emphasis on Tate & Lyle’s ingredients business.

“Clearly, this move creates a more focused Food & Beverage Solutions business, which is exciting because of our ability to unlock that growth potential, especially in the areas of sugar reduction and added goodness into food as we see those trends accelerate as a result of the pandemic,” he said, according to the transcript.

How soon there will be new news is still unknown. Sehgal, in the transcript, was optimistic.

“I think negotiations are going well,” he said. “We are thoughtful on the process. And we have a very bright future going ahead right now.