Tate & Lyle potentially vulnerable to Cargill takeover bid, M&A expert
Speculation about US giant Cargill possibly bidding for UK-based Tate hit the wires on January 19, when City analyst Andy Ford at MF Global said in a note that he saw Cargill was a “potential bidder” for Tate.
Tate’s share price soared to 576.5p as a result of the talk (its highest since March 2008), valuing the firm at £2.7bn, although reports suggest that any potential bidder would have to pay around £3.5bn (around 747p per share).
Speculation not ‘pie in sky’
Asked whether the gossip had any possible substance, Julian Wild, corporate finance partner, Rollits, told this publication: “I don’t think this talk is pie in the sky at all. Clearly Tate has moved away from its sugar and molasses interests, and is building its reputation as a food ingredients business, just like Kerry or Glanbia.
“So it’s true to say that Tate is in a period of reinvention. Is it vulnerable to a bid? I would say ‘probably’: there’s a fair appetite out there to do deals, and a renewed appetite in the private equity world.”
Ford’s note followed Cargill’s announcement of plans to divest its 64% stake (thought to be worth around £29bn) in fertiliser business Mosaic for £29bn over the next two years, freeing cash to reduce its debt pile and fund acquisitions.
Any tie-up with Tate would help to consolidate the US high-fructose corn syrup market, and provide complementary technologies in food science, said Ford, “We would see minimal anti-trust issues and a strong geographic fit,” he added.
Tate’s functional food drive
At Health Ingredients Europe (HIE) last November, Tate’s global marketing manager Caroline Sanders said the firm was going “full steam ahead” into functional food ingredients. Products such Splenda (sucralose) and Sta-Lite (polydextrose) would also fit Cargill’s portfolio.
Resources to fund any bid would not be a problem, Wild said: “Cargill is a massive player [estimates put the firm’s value at around $53.6bn] and I can’t imagine resources are remotely an issue – if Cargill want something they will go for it.
“Whether Tate is on Cargill’s strategic map or not I don’t know, but there’s no smoke without fire, and at the very least the recent speculation might well drive a few more people out of the woodwork.”
However, another City analyst, who asked to remain anonymous, said he doubted any deal between Cargill and Tate would transpire.
“My view is that any takeover would fail to get regulatory approval, simply because it would create too big an entity regarding corn processing in the US. So I personally think that such a deal is unlikely.”
Asked about media reports suggesting that Tate & Lyle's current chief executive Javed Ahmed (pictured) would fight any takeover bid ‘tooth and nail’, another industry insider said:
“Well of course they always say that, no-one wants to potentially lose their job in the event of a takeover, and Mr Ahmed hasn’t been at Tate particularly long.
“Also, and we see this time and time again, vehement opposition is one way of talking up a bid amount, then when a knockout offer comes in that one stands to benefit from, one is suddenly in favour. It’s all a game.”