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Tate & Lyle shares rose as much as 7% on Monday after the food and ingredients maker said it was in talks to sell most of its primary products division.
The announcement from Tate & Lyle
TATE,
came after the Sunday Telegraph reported it has held talks on auctioning the artificial sweetener making unit off for £1.2 billion ($1.66 billion), possibly to a private-equity firm.
Analysts were excited about the prospect of Tate & Lyle’s food and beverage solutions unit trading as a separate entity. Analysts at Barclays Capital said even at 18 times enterprise value/earnings before interest and tax, the unit still would trade at a discount to Kerry
KRZ,
DSM
DSM,
and Symrise
SY1,
In the six months to Sept. 30, the food and beverage solutions arm recorded an adjusted operating profit of £98 million on revenue of £475 million, and the primary products unit recorded an adjusted operating profit of £83 million on revenue of £842 million.
A clean exit might not be possible, and Tate & Lyle implicitly acknowledged this by saying it is in talks to sell a “controlling” stake. Analysts at Jefferies point out that two major U.S. plants for Tate & Lyle make products both for the primary products as well as food and beverage solutions division. Another issue, the analysts noted, is that Tate & Lyle currently benefits from the ability to offset U.K. tax losses against U.S. profits, a benefit it wouldn’t enjoy as much in a joint venture scenario.
The FTSE 100
UKX,
meandered on Monday, ahead of a big week for earnings including the latest results from electric vehicle maker Tesla
TSLA,
after the close of trade on Wall Street. In early afternoon trade, the FTSE 100
UKX,
rose 0.3%, just 1% below its April 19 high.
Also on the move, U.K. engineering group IMI
IMI,
rallied 11% after lifting its earnings guidance by 7% and launching a £200 million stock buyback program.
