London / UK. (tl) Tate + Lyle PLC, a leading global provider of speciality food ingredients and solutions, announced in July that it has entered into an agreement to sell a controlling stake in a new company and its subsidiaries («NewCo»), comprising its Primary Products business in North America and Latin America and its interests in the Almidones Mexicanos S.A de C.V («Almex») and DuPont Tate + Lyle Bio-Products Company, LLC («Bio-PDO») joint ventures, to KPS Capital Partners, LP («KPS») (the «Proposed Transaction»). Tate + Lyle and KPS will each own 50 percent of NewCo with KPS having Board and operational control.
- Creates two standalone businesses – Tate + Lyle and NewCo – each positioned to focus on their respective strategies and capital allocation priorities:
- Tate + Lyle – A leading global food and beverage solutions business focused on faster growing speciality markets.
- NewCo – A leader in plant-based products for the food and industrial markets.
- Values the whole of NewCo at an enterprise value of approximately USD 1.7 billion (about GBP 1.2 billion), equivalent to a multiple of 5.1x Ebitda for the year ended 31 March 2021.
- Tate + Lyle expects to receive gross cash proceeds of approximately USD 1.3 billion (about GBP 0.9 billion), resulting in net cash proceeds of approximately USD 1.2 billion (about GBP 0.9 billion) after customary adjustments and transaction costs.
- Following completion, the Board intends that approximately GBP 0.5 billion (USD 0.7 billion) be returned to Tate + Lyle’s shareholders by way of a special dividend and associated share consolidation. The balance will be retained to strengthen Tate + Lyle’s balance sheet, provide flexibility to invest to accelerate growth and for potential tax arising as a result of the Proposed Transaction.
- 20-year long-term agreements have been established between Tate + Lyle and NewCo to provide supply security and economic protection over the Food + Beverage Solutions’ («FBS») products made in NewCo’s facilities, and to ensure continued alignment of objectives between the two companies. 75 percent of Tate + Lyle’s revenue in the year ended 31 March 2021 was generated from manufacturing facilities that will remain under its own control.
- It is expected that NewCo will generate significant and steady free cash flow with the ability to pay meaningful dividends over time to Tate + Lyle and KPS. Tate + Lyle will also benefit from potential value upside from retaining a substantial equity stake in NewCo.
- Completion is expected in the first quarter of the 2022 calendar year subject to approval by Tate + Lyle’s shareholders, anti-trust clearances, completion of a reorganisation and IT separation and other customary conditions. A circular to shareholders will be posted and the General Meeting will be scheduled in due course.
Strategic Rationale for Tate + Lyle
- Transformational move re-positions Tate + Lyle as a global food and beverage solutions business focused on faster growing speciality markets, with opportunity to:
- Benefit from growing global consumer demand for healthier food and drink, accelerated by the global pandemic.
- Build on FBS’ strong track record of growth over the last three years through a step-up in R+D investment to accelerate innovation.
- Increase focus on solutions development to support and strengthen customer relationships.:
- Strengthens Tate + Lyle’s attractiveness as a partner to other speciality ingredients businesses.:
- Substantially reduces exposure to commodities markets and bulk ingredients in North America.:
- Strengthens Tate + Lyle’s balance sheet and creates a platform to re-focus capital towards delivering stronger organic and inorganic growth.:
- Strategic re-positioning supports ambition for five years following completion:
- Organic revenue growth of mid single-digit percent per annum
- Operating margin expansion of at least 50 to 100 basis points per annum
- Organic return on capital employed improvement of 50 basis points per annum on average.
NewCo will comprise Tate + Lyle’s Primary Products business in North America and Latin America consisting of the following operations:
- Corn wet mills in the US in Decatur, Illinois, Lafayette, Indiana and Loudon, Tennessee.
- Acidulants plants in Dayton, Ohio, Duluth, Minnesota (both US) and Santa Rosa, Brazil.
- 50 percent shareholdings in two joint ventures – Almex in Guadalajara, Mexico and Bio-PDO, in Loudon, Tennessee, US.
- Grain elevator network and bulk transfer stations in North America.
Primary Products’ European operations, which in aggregate represented approximately 5 percent of Primary Products revenue in the year ended 31 March 2021, are not included in NewCo and will remain with Tate + Lyle.
In the financial year ended 31 March 2021, on a proforma basis, NewCo generated revenues of GBP 1.7 billion and adjusted operating profit of GBP 165m. As at 31 March 2021, NewCo had gross assets of GBP 1.3 billion.
KPS Capital Partners LP
KPS is a leading global private equity firm, headquartered in New York, that makes controlling equity investments in companies across a diverse array of industries. KPS invests exclusively in manufacturing and industrial companies. Its portfolio companies currently generate nearly USD 11 billion in annual revenue and operate 149 manufacturing facilities in 22 countries with over 35,000 employees worldwide.
KPS is known for its ability to execute complex corporate carve-out transactions on a global scale, and corporate carve-outs represent over 50 percent of its platform investments. In 2021, KPS created Speira to acquire the largest aluminum rolling business in Europe from Norsk Hydro and announced that it is acquiring the European Tinplate Packaging business of Crown Holdings, with Crown Holdings partnering with KPS by retaining 20 percent of the new company. Over the past year, KPS acquired Lufkin Industries from Baker Hughes and Schlumberger’s Rod Lift Business and IKG from Harsco in connection with corporate carve-out transactions.
Chief Executive’s Remarks
Nick Hampton, Chief Executive of Tate + Lyle, said: «This announcement represents the next phase in the evolution of Tate + Lyle. Our one strong company will become two stronger businesses, both in a position to pursue new and exciting growth opportunities in their respective markets.
Building on the strong platform established over the last three years, the proposed transaction will transform Tate + Lyle into a purpose-led, global food and beverage solutions business, serving faster growing speciality markets. With our new focus and a step-up in R+D investment, innovation and solutions development, we will be able to significantly enhance how we serve our customers, and accelerate growth. Our deep scientific expertise, unique product portfolio and leading technical capabilities in sweetening, mouthfeel and fortification, position us very well to benefit from growing consumer demand for food and drink that is lower in sugar, calories and fat, and with added fibre. With the pandemic accelerating the trend towards healthier food, now is the right time to focus our business on capturing this growth.
We have been very impressed with KPS and are excited to partner with them in the next phase of the development of the Primary Products business. KPS has proven expertise in managing and creating value from large manufacturing businesses, and we look forward to working with them under the long-term agreements we have established to provide supply security and economic protection to both businesses, and to jointly benefit from cash dividends and future value creation.
The proposed transaction represents an ambitious and bold step forward for Tate + Lyle. Driven by our purpose, all our people, expertise and investment will be dedicated to growing our global food and beverage solutions business and creating healthier food and drink. An exciting future lies ahead for Tate + Lyle.»
KPS Capital Partners’ Remarks
Michael Psaros, Co-Founder and Managing Partner of KPS Capital Partners, said: «KPS is excited to make a controlling investment in Primary Products and is honoured to partner with Tate + Lyle for many years to come. KPS and Tate + Lyle have complete alignment of interests and have cemented a partnership based on shared values such as the safety of our respective employees and a demonstrated commitment to sustainability.
KPS believes that Primary Products is a superior investment opportunity and that there is a tremendous opportunity to materially increase revenues, productivity and profitability. We look forward to working with the existing Primary Products management team and its employees to build on the great platform they have established and drive future growth.»