FTSE 250 food producer Tate & Lyle (LON:TATE) has recommended a £2.7 billion takeover by US peer Ingredion (NYSE:INGR). The speciality ingredients group has wrestled with higher costs and weak demand from customers in recent years.
Earnings downgrades have ensued, dragging on the share price and leaving Tate & Lyle vulnerable to a bid.
Sweetened deal
Ingredion’s latest, sweetened total offer of 615p a share represents a 64% premium to the undisturbed Tate & Lyle share price. The deal gives Tate & Lyle shareholders 595p in cash, plus dividends of 20p per share.
Acquiring Tate & Lyle strengthens the competitive position of Jim Zaillie-led Ingredion, which also provides ingredients to global food and beverage manufacturers.
The combined group will be a global ingredients giant with revenues of roughly $9.9 billion, adjusted EBITDA of $1.8 billion and significantly improved free cash flow conversion.
Mellow outlook
The ingredients sector has some tasty structural growth drivers, but over the last year the operating environment for its key players and their customers has deteriorated. Consumer sentiment has weakened across all major regions.
Amid slowing near-term growth, Tate & Lyle has lowered guidance and its expectations for near-term future performance. As a result, the board has thrown in the towel and unanimously recommended Ingredion’s offer.
Chairman David Hearn explained: ‘Looking forward, we believe the next chapter with Ingredion will create a business with even greater potential, greater scale, and increased investment in innovation in support of customers.
‘The board of Tate & Lyle believes Ingredion’s offer represents an attractive opportunity for shareholders to crystallise value in cash, and that it will be an excellent steward of Tate & Lyle.’
It is a real shame to see yet another storied UK company exit the London stock market through a takeover. While the takeout price is a decent premium to the depressed levels at which Tate & Lyle has traded of late, keep in mind the shares were closing in on £10 back in 2013.
The company has also completed its transformation into a pure-play, higher-margin ingredients specialist through the integration of pectin-to-speciality gums provider CP Kelco.
Unfortunately, this positive evolution coincided with a period of muted market demand. Cost pressures and the inflationary squeeze on consumer spending have triggered earnings downgrades from Tate & Lyle, which becomes the latest historic UK company to depart the London market.
Read the press release here:
https://www.tateandlyle.com/investors/results-reports-and-presentations
