Proposed Combination of Tate & Lyle and CP Kelco

Tate & Lyle has announced its intention to merge with CP Kelco, a move aimed at creating a dominant force in the global speciality food and beverage solutions sector. The transaction involves acquiring CP Kelco, known for its expertise in pectin, speciality gums, and other nature-based ingredients, from J.M. Huber Corporation for approximately US$1.8 billion.

Highlights

The proposed acquisition of CP Kelco by Tate & Lyle is valued at approximately US$1.8 billion (£1.4 billion), comprising cash and stock considerations. This strategic move is expected to enhance Tate & Lyle's revenue growth and adjusted EBITDA margin significantly in the coming years, leveraging targeted cost synergies and anticipated revenue synergies.

Transaction Details

Under the terms of the agreement, Tate & Lyle will pay US$1.15 billion in cash and issue 75 million new ordinary shares to Huber, valued at around US$645 million. An additional 10 million shares may be issued based on future performance criteria. Huber will retain approximately 16% ownership in Tate & Lyle post-transaction and will have the right to appoint two non-executive directors to Tate & Lyle's board.

Strategic Rationale

The merger combines Tate & Lyle's strengths in Sweetening, Mouthfeel, and Fortification with CP Kelco's leadership in pectin and speciality gums. This integration aims to bolster innovation capabilities and expand market presence in the growing sector of healthier and sustainable food and beverage solutions.

Financial Effects

The transaction accelerates Tate & Lyle's strategy to achieve higher revenue growth and improved adjusted EBITDA margins. It targets significant cost synergies, expecting at least US$50 million by the end of the second year post-completion, alongside potential revenue synergies of up to 10% of CP Kelco’s current revenue. Tate & Lyle anticipates the transaction to be earnings accretive in the second full financial year after completion.

Financial Strategy

Tate & Lyle plans to maintain a robust balance sheet post-transaction, aligned with its capital allocation and dividend policy, including the initiation of a US$270 million share buyback program.