Tate & Lyle signs deal to acquire the entire CP Kelco for $1.8 billion

LONDON: Tate & Lyle has entered into an agreement to acquire the entire issued share capital of CP Kelco U.S.; CP Kelco China; and CP Kelco ApS together with each of their respective subsidiaries from J.M. Huber Corporation for a total implied consideration of US$1.8 billion.

 CP Kelco is a leading provider of pectin, speciality gums and other nature-based ingredients,

Over the last six years, Tate & Lyle has been executing a major strategic transformation to become a growth-focused speciality food and beverage solutions business aligned to attractive structural and growing consumer trends for healthier,the cu tastier and more sustainable food and drink.

This transformation has included a much sharper focus on customers and key categories, increased investment in innovation and solution selling capabilities, and the significant strengthening of its Sweetening, Mouthfeel and Fortification platforms through new product development and acquisitions.  

This transformation was completed with the announcement on 23 May 2024 of the proposed sale of Tate & Lyle’s remaining interest in Primary Products Investments LLC (‘Primient’).

The proposed transaction significantly accelerates Tate & Lyle’s strategy to be a leading and differentiated speciality food and beverage solutions business, and to become the solutions partner of choice for customers. 

It is expected to drive stronger revenue growth and significant adjusted EBITDA margin improvement over the next few years.

 It is also expected to be accretive to adjusted earnings per share, including cost synergies only, in the second full financial year following completion, and strongly accretive thereafter.

FINANCIAL EFFECTS

· The Proposed Transaction accelerates the delivery of Tate & Lyle’s strategy to create a higher growth business underpinned by an attractive financial algorithm, including:

• Drive revenue growth towards higher-end of Tate & Lyle’s 4%-6% per annum ambition8:

o Industry growth: Increasing consumer demand for healthier, tastier and more sustainable food and drink.

o Broader offering: Accelerate growth from complementary portfolios, platforms and categories.

o Stronger capabilities: Enhanced capabilities to increase innovation and solution selling to customers.

• Drive significant adjusted EBITDA margin improvement over the next few years:

o Cost synergies: Targeted run-rate cost synergies of at least US$50 million (£40 million) over the two full financial years following completion.

o Margin improvement: Phased recovery in profitability of CP Kelco.

o Solution selling: Margin accretive solution selling from two or more years.

• Target to consistently exceed 75% free cash flow conversion9.

· The Proposed Transaction is expected to be accretive to adjusted earnings per share, including cost synergies only, in the second full financial year following completion, and strongly accretive thereafter.

· Return on invested capital (ROIC) expected to exceed Tate & Lyle’s weighted average cost of capital (WACC) in the fifth full year following completion.

· Targeted run-rate cost synergies of at least US$50 million (£40 million) by the end of the second full financial year following completion, with 50% – 60% (or c.US$25 million) of cost synergies to be realised by the end of the first full financial year following completion. The cost to deliver these synergies is estimated to be around US$75 million. There is also significant opportunity to accelerate revenue growth and, over the medium term, we are targeting revenue synergies of up to 10% of CP Kelco’s revenue.

· Net debt to EBITDA leverage anticipated to be approximately 2.3×10 at the financial year-end following completion, with strong cash generation thereafter. Tate & Lyle remains within its 1.0x to 2.5x long-term target net debt to EBITDA leverage range with the capacity and flexibility for further investment.

· No change to Tate & Lyle’s existing approach to capital allocation and dividend policy; Tate & Lyle remains committed to maintaining a strong and efficient balance sheet.

· The recently announced US$270 million (c.£215 million) share buyback programme, previously to follow completion of the sale of the remaining interest in Primient, will start today.

Nick Hampton, Chief Executive, Tate & Lyle said: “A combination with CP Kelco is the perfect fit with Tate & Lyle’s growth-focused strategy and purpose.

It significantly strengthens our Sweetening, Mouthfeel and Fortification platforms, enhances our solutions capabilities across our four core categories, and unlocks new growth opportunities.

Together, we will have a compelling customer proposition. With our leading portfolio of speciality ingredients and a world-class team of food science experts, we will be uniquely placed to provide our customers with the solutions they need to meet growing consumer demand for healthier, tastier and more sustainable food and drink.

We’ve been collaborating with CP Kelco on innovation projects for many years and are very aware of their excellent products and the outstanding capabilities of their people.

We are excited about the opportunities the combination will create for customers across the world, and the opportunities for employees in both companies to develop their careers across a broader global business.

Following on from the announcement of the proposed sale of our remaining interest in Primient last month, the proposed combination with CP Kelco represents a significant acceleration of our growth-focused strategy.

It creates a leading, global speciality food and beverage solutions business, ideally placed to benefit from the structural trends towards more plant-based, clean-label and sustainable ingredients and solutions.

The growth potential of the proposed combined business is significant and we look forward to the future with confidence and excitement.”

Didier Viala, President, CP Kelco said: “We are delighted to be joining with Tate & Lyle to create a leading and differentiated speciality food and beverage solutions business. CP Kelco and Tate & Lyle are both highly customer-focused businesses with a shared passion for science and innovation.

With our complementary portfolio and deep technical expertise, we will bring new value to our customers and new opportunities for our employees. This is an exciting time for our combined businesses.”