Tate & Lyle is long-term loser as Corn Products snaps up National Starch

By Elaine Watson

- Last updated on GMT

Related tags National starch Starch Economics Depreciation

Allowing National Starch to fall into the hands of a major rival is not great news for Tate & Lyle in the longer-term, City analysts have warned.

Speaking to FoodManufacture.co.uk as Corn Products International (CPI) announced plans to acquire National Starch in a $1.3bn deal, Investec analyst Martin Deboo said: "In the short-term, it's neutral to positive for Tate & Lyle, as were Tate to have bought National Starch, it would have had to issue a lot of new equity, which would have been pretty unpopular."

"However, in the long-term, it's got to be negative for Tate, as it has let a prize asset in the global starch industry fall into the hands of a key competitor."

That said, CPI had paid a "hefty price"​ for National Starch, he said. "Yes, it's a prime strategic asset at the up-market end of the starch business, but they did pay 13 times EBITDA​ [earnings before interest, tax, depreciation and amortisation] when the usual for this sector is six to nine times."

Meanwhile, the deal also raised the possibility that agri-food giant Bunge might see the acquisition of Tate & Lyle as the best route into the wet corn milling trade given that CPI (which it tried to acquire in 2008) was now $1bn more expensive, he said.

The National Starch deal would "create an ingredient solutions leader with nearly $5bn in revenues,"​ said CPI chief executive Ilene Gordon. "The acquisition aligns with our strategic priorities to grow our ingredient portfolio, increase our presence in priority food processing segments and enter new markets."

"The transaction is expected to generate cost synergies of at least $50m, primarily from efficiencies in the areas of manufacturing, procurement, logistics and general and administrative functions."

*Read more about the acquisition at our sister publication FoodNavigator.com.

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