Tate & Lyle to re-position and sell controlling stake in primary products business
The deal creates two standalone businesses – Tate & Lyle and NewCo – each positioned to focus on their respective strategies and capital allocation priorities.
Tate & Lyle will be positioned as a global food and beverage solutions business focused on faster growing specialty markets, while NewCo looks to be a leader in plant-based products for the food and industrial markets.
The value of the whole of NewCo has been set at an enterprise value of approximately $1.7bn, equivalent to a multiple of 5.1x EBITDA for the year ended March 31, 2021.
Tate & Lyle expects to receive gross cash proceeds of approximately $1.3bn, resulting in net cash proceeds of approximately $1.2bn after customary adjustments and transaction costs.
Following completion, the board said it intends that approximately $700m be returned to Tate & Lyle’s shareholders by way of a special dividend and associated share consolidation. The balance will be retained to strengthen Tate & Lyle’s balance sheet, provide flexibility to invest to accelerate growth and for potential tax arising as a result of the proposed transaction.
Twenty-year long-term agreements have been established between Tate & Lyle and NewCo to provide supply security and economic protection over the Food & Beverage solutions’ (FBS) products made in NewCo’s facilities, and to ensure continued alignment of objectives between the two companies. Tate & Lyle said 75% of its revenue in the year ended March 31, 2021 was generated from manufacturing facilities that will remain under its own control.
It is expected that NewCo will generate steady free cash flow with the ability to pay meaningful dividends over time to Tate & Lyle and KPS. Tate & Lyle will also benefit from potential value upside from retaining a substantial equity stake in NewCo.
Completion is expected in the first quarter of the 2022 calendar year subject to approval by Tate & Lyle’s shareholders, anti-trust clearances, completion of a reorganization and IT separation and other customary conditions. A circular to shareholders will be posted and the general meeting will be scheduled in due course.
Tate & Lyle said the transformational move re-positions the company as a global food and beverage solutions business focused on faster growing specialty markets, with opportunity to benefit from growing global consumer demand for healthier food and drink, accelerated by the global pandemic.
The company added the deal also strengthens its attractiveness as a partner to other specialty ingredients businesses and substantially reduces exposure to commodities markets and bulk ingredients in North America.
It added the new path would strengthen Tate & Lyle’s balance sheet and create a platform to re-focus capital towards delivering stronger organic and inorganic growth.
NewCo will comprise Tate & Lyle’s Primary Products business in North America and Latin America consisting of the following operations: Corn wet mills in the US in Decatur, Illinois, Lafayette, Indiana and Loudon, Tennessee; acidulants plants in Dayton, Ohio, Duluth, Minnesota and Santa Rosa, Brazil; 50% shareholdings in two joint ventures – Almex in Guadalajara, Mexico and Bio-PDO, in Loudon, Tennessee; and a grain elevator network and bulk transfer stations in North America.
Primary Products’ European operations, which in aggregate represented approximately 5% of revenue in the year ended March 31, 2021, are not included in NewCo and will remain with Tate & Lyle.
Nick Hampton, chief executive of Tate & Lyle, said, “Today’s announcement represents the next phase in the evolution of Tate & Lyle. Our one strong company will become two stronger businesses, both in a position to pursue new and exciting growth opportunities in their respective markets.
“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 specialty markets. 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.
“Our deep scientific expertise, unique product portfolio and leading technical capabilities in sweetening, mouthfeel and fortification, position us very well to benefit from growing consumer demand for food and drink that is lower in sugar, calories and fat, and with added fiber. With the pandemic accelerating the trend towards healthier food, now is the right time to focus our business on capturing this growth.”
Michael Psaros, co-founder and managing partner of KPS Capital Partners, said, “KPS is excited to make a controlling investment in Primary Products and is honored to partner with Tate & Lyle for many years to come. KPS and Tate & Lyle have complete alignment of interests and have cemented a partnership based on shared values such as the safety of our respective employees and a demonstrated commitment to sustainability.
“KPS believes that Primary Products is a superior investment opportunity and that there is a tremendous opportunity to materially increase revenues, productivity and profitability. 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.”
