21st Jun 2024 09:54
(Alliance News) - German bank Berenberg backed Tate & Lyle PLC's move to acquire CP Kelco, believing investor nerves about the deal are "overdone".
The London-based sweetener and food ingredients supplier on Thursday said the USD1.8 billion takeover of the Atlanta, Georgia-based company will create a "leading global speciality food and beverage solutions business".
Tate & Lyle expects the takeover to complete in the fourth quarter of 2024.
The deal with JM Huber Corp consists of a USD1.15 billion cash portion, funded from new and existing debt facilities and cash resources, and USD645 million from the issue of 75 million new Tate & Lyle shares, giving a value of USD8.60 per Tate & Lyle share.
There is a deferred consideration of up to 10 million extra Tate & Lyle shares subject to performance criteria based on Tate & Lyle's share price.
Consumer and industrial products firm Huber will "become a long-term shareholder" of Tate & Lyle, with a 16% stake on completion of the acquisition of CP Kelco.
Huber will be entitled to nominate two non-executive directors of Tate & Lyle for as long as it holds at least a 15% stake.
Tate & Lyle Chief Executive Officer Nick Hampton 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."
CP Kelco President Didier Viala said: "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."
Tate & Lyle shares ended down 8.8% at 617.50 pence each in London on Thursday.
"We think this reaction was too extreme," Berenberg analysts said. Tate & Lyle shares have since risen 1.7% to 626.17p each on Friday morning.
The share price fall was "likely driven by the cumulative 9% dilution to FY 2025-26 earnings per share implied by the deal", Berenberg added, as well as "execution" risks.
"However, in the longer term, we think the transaction should position Tate towards higher-growth markets, with a strong margin tailwind," the German bank added.
By Eric Cunha, Alliance News news editor
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