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Is National Starch division top of Tate & Lyle's shopping list?

20-Sep-2007

Tate & Lyle will be first in the queue to snap up National Starch's specialty starches division if its new owners decide to raise a for sale sign over the division, analysts have predicted.

Dutch firm Akzo Nobel last month struck an £8bn deal to acquire National Starch's parent company ICI, primarily to boost its scale in the high growth coatings market. However, it has already agreed to sell ICI's adhesives and electronic materials divisions to Henkel, and confirmed that specialty starches - while providing "attractive near term growth and margin potential" - would be reviewed in due course.

Merging the £502M business with Tate & Lyle's starches operation, which has recently been boosted by the acquisitions of GC Hahn and Cesalpinia, would generate significant cost savings, said analysts at Numis Securities. "Tate could close three National Starch wet mills in the US and Europe."

However, Numis also warned that margins at Tate & Lyle could come under pressure if capacity in the high fructose corn syrup (HFCS) market wasn't carefully managed and its high intensity sweetener Splenda sucralose failed to meet market expectations.

"The near term outlook for HFCS remains bright, but the opening of Mexico to HFCS exports could lead to ill-managed capacity expansions and profits declines." Some ethanol producers could also switch to HFCS production if ethanol profits dropped lower than those for HFCS, creating overcapacity and threatening profitability, it warned.

Meanwhile, two major product launches with Splenda: Diet Coke with Splenda and Pepsi One, had failed to take off, and Diet 7Up with Splenda had reverted back to using aspartame, said Numis. Competition also threatened margins: "The real question is when sucralose will be commoditised, not if."

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