The £211m deal to sell its cane sugar refineries in London and Lisbon and the Lyle’s Golden Syrup factory in London to American Sugar Refining Inc, was a sensible move, said Investec analyst Martin Deboo.
“Our view has been that cane sugar refining in the EU is a challenged business model and we think that Tate should be able to find better uses for the cash in speciality ingredients.
"It's just a shame that the potential acquisition of National Starch came along a little too early for [Tate chief executive] Javed Ahmed (pictured)."
The deal would also give Tate “more material firepower to pursue its strategy”, added Jones at Panmure Gordon. “We believe Tate now has firepower to develop its added-value food ingredients business of at least £500m.”
Uncertain future for staff at Silvertown
Union bosses have sought urgent talks with Tate & Lyle and American Sugar in a bid to secure jobs at Tate & Lyle’s Silvertown refinery in London.
But while this was an anxious time for staff, it did not necessarily follow that jobs would go, added Jones. Asked whether he thought the site was safe for the time being, he told FoodManufacture.co.uk:
“Yes I think so. Cane refining is their core business so I would have thought that would be the plan. Clearly a key strategic issue Tate was facing was securing sufficient raw cane supplies in the medium term to fill both factories. Obviously they wouldn't want to be living hand to mouth like they are at the moment.”
Investec's Deboo said Ahmed had secured a good price for the business: “Clever Tate. Despite their sphinx-like silence, there was a plan to sell sugars after all. And for considerably more than we dared to expect.”
The sale also meant that Tate’s net debt “should have been halved inside two years”, he predicted. “We can't avoid the pun that this looks like a very sweet deal to us.
"We had been happy to support closure of the Sugars business for a net realisation of as little as £50m and some modest earnings dilution. Instead the exit is realising £211m.”
He added: “Behind the facade of iconic brands lay a crumbling economic model that we think it was beyond Tate to fix. Hopefully American Sugar can bring some new perspectives and synergies to bear and valuable jobs in East London will be preserved.”
Strategic objective: Growing Speciality Food Ingredients
Tate & Lyle also said it planned to sell the remaining businesses within the Sugars division (molasses and Vietnamese sugar).
Javed Ahmed said: “Tate & Lyle’s clear priority is to grow its Speciality Food Ingredients business, supported by cash generated from Bulk Ingredients.
“This disposal will enable us to concentrate our resources on delivering our strategic objectives as we focus, fix and grow our business.”
American Sugar Refining Inc operates several cane sugar refineries in the US. The firm acquired Redpath, Tate & Lyle's Canadian sugar operation, in 2007.