The Tate & Lyle (LSE: TATE) share price has flown higher since the start of 2021. After beginning the year at 634p per share, the food ingredients maker has gained a mammoth 19% in value. It’s up by a similar percentage over the past 12 months too.
Tate & Lyle’s share price soared on Monday as talk of a break-up of the group has emerged. At 803p per share as I write, the FTSE 250 firm is up 6%+ on the day. It touched intraday peaks around 809p earlier in the session, levels not seen since late 2013.
Tate & Lyle looks to split
Today Tate & Lyle updated the market in response to media speculation at the weekend concerning a possible splitting up of the group. In line with those rumours, the company confirmed that it is “in the process of exploring the potential to separate its Food & Beverage Solutions and Primary Products businesses.”
Tate & Lyle said that it was investigating a way to separate these businesses by selling a controlling stake in the Primary Products division to a new long-term financial partner.
The FTSE 250 firm said that it “continues to successfully execute its strategy and remains confident in the future growth prospects of the company.” However, it added that separating Food & Beverage Solutions and Primary Products “would enable Tate & Lyle and the new business to focus their respective strategies and capital allocation priorities and create the opportunity for enhanced shareholder value.”
It noted that discussions with potential new partners in its Primary Products unit “are at an early stage.” It added too that “therefore there can be no certainty that a transaction will be concluded.”
Suitors waiting in the wings?
Today’s statement follows reports yesterday that Tate & Lyle was about to put part of its Primary Products division on the auction block to raise a whopping £1.2bn. The Sunday Telegraph reported that US private equity firms Apollo Global Management and Cerberus have already held talks with the British company over a deal.
The Primary Products arm manufactures artificial sweeteners and industrial starches for customers in the food & beverage industries. The unit generated around 46% of group profits during the six months to September, latest financials showed.
A tasty takeover
It’s perhaps no surprise that Tate & Lyle is seeking to hive off part of its this unit. Operating margins here are much lower than at the company’s other operations. In the half-year to September, margins here clocked in at 9.9%. This compares to readings of 20.5% and 34.9% at the firm’s Food & Beverage Solutions and Sucralose divisions respectively.
The move would also allow Tate & Lyle to eradicate its large debt pile (of £358m as of September). It could also chase further growth opportunities through significant acquisitions like that of Stevia manufacturer Sweet Green Fields in December.