In a 17-page note to investors, Investec Securities analyst Martin Deboo predicted that National Starch (which is being auctioned by owner Akzo Nobel), was more likely to be snapped up by Corn Products, Danisco or Associated British Foods than Tate & Lyle.
While Tate & Lyle's chief executive Javed Ahmed (pictured) was "never likely to saying anything definitive on the mooted acquisition" in meetings with City analysts about the full-year results on May 27, many were expecting him to drop some strong hints, claimed Deboo.
"We were listening intently for any merger and acquisition hints, but heard little. A reading of the runes would suggest to us that it is now improbable. And the likely result is that a prime strategic asset, right in the sweet spot of the new strategy, looks set to fall into enemy hands.
"Should this come to pass, the competitive ante will rise and, in the medium-term, growth for Tate in speciality food ingredients will be that much harder to achieve."
While the purchase of National Starch would be consistent with Tate's renewed focus on speciality ingredients (as outlined in its strategic review) said Deboo, "we are inclined to think that such an eventuality is unlikely."
If Ahmed were eyeing up National Starch, he added, why had he "resolved to preserve an investment grade credit rating" and "explicitly defined the terms of a newly-tightened leverage constraint?
"Why choose this moment to do this, we muse, if some acquisitive wriggle room was needed?"
For Tate & Lyle to put a credible offer on the table for National Starch, it would have to issue more than £600m of new shares or sell a sizeable business such as the sucralose division to fund the deal, he claimed.
"The whole scheme now feels improbable to us. The acquisition of National Starch looks to us to be off the agenda."
While he was impressed by Ahmed’s proposal to create a new operating model for the business, Deboo said he was "a bit disappointed" by his "reluctance to address the portfolio challenges".
Ahmed's analysis appeared to suggest that Tate's problems were "largely executional", added Deboo, while Investec believed that they were "primarily structural".
While Ahmed's willingness to "examine all options to secure shareholder value" when questioned about the long-term future of Tate's sugar business suggested that he would consider an exit from sugar, said Deboo, "we were disappointed by the lack of any conspicuous action on shuffling Tate's portfolio."
He added: "We continue to think that it is going to be difficult for Mr Ahmed to demonstrate real progress unless and until he rids himself of this turbulent problem child."
Dutch firm Akzo Nobel struck an £8bn deal to acquire National Starch's parent company ICI in 2007, primarily to boost its scale in the high-growth coatings market. However, specialty starches - while providing "attractive near term growth and margin potential" - were not a core part of the business and would be reviewed in due course, said the firm.
Bringing National Starch into Tate & Lyle's stable, which has recently been boosted by the acquisitions of GC Hahn and Cesalpinia, could generate significant cost savings, according to some analysts.