Tate + Lyle and CP Kelco to merge to leading global player

London / UK. (tl) Tate + Lyle PLC announces that it has entered into an agreement to acquire the entire issued share capital of (a) CP Kelco U.S.; (b) CP Kelco China; and (c) CP Kelco ApS together with each of their respective subsidiaries (together «CP Kelco»), a leading provider of pectin, speciality gums and other nature-based ingredients, from J.M. Huber Corporation for a total implied consideration of USD 1.8 billion (approximately GBP 1.4 billion), on a cash-free, debt-free basis.

Over the last six years, Tate + Lyle has been executing a major strategic transformation to become a growth-focused speciality food and beverage solutions business aligned to attractive structural and growing consumer trends for healthier, tastier and more sustainable food and drink. This transformation has included a much sharper focus on customers and key categories, increased investment in innovation and solution selling capabilities, and the significant strengthening of its Sweetening, Mouthfeel and Fortification platforms through new product development and acquisitions. This transformation was completed with the announcement on 23 May 2024 of the proposed sale of Tate + Lyle’s remaining interest in Primary Products Investments LLC (Primient).

The Proposed Transaction significantly accelerates Tate + Lyle’s strategy to be a leading and differentiated speciality food and beverage solutions business, and to become the solutions partner of choice for customers. It is expected to drive stronger revenue growth and significant adjusted Ebitda margin improvement over the next few years. It is also expected to be accretive to adjusted EPS, including cost synergies only, in the second full financial year following completion, and strongly accretive thereafter.

Transaction Highlights

Under the terms of the Proposed Transaction Tate + Lyle will acquire CP Kelco for total implied headline consideration at completion of USD 1.8 billion (approximately GBP 1.4 billion), subject to customary adjustments, consisting of:

• USD 1.15 billion (approximately GBP 905 million) in cash from new and existing debt facilities and cash resources.
• Issue of 75 million new Tate + Lyle ordinary shares to Huber with an implied value of circa USD 645 million (approximately GBP 510 million).
• Deferred consideration of up to 10 million additional Tate + Lyle ordinary shares to be delivered to Huber approximately two years post-completion of the Proposed Transaction, subject to performance criteria based on Tate + Lyle’s share price.

• The total implied headline consideration represents 10x CP Kelco’s adjusted Ebitda for the year ended 31 December 2023 including run-rate cost synergies.
• The Proposed Transaction is expected to deliver significant synergies:

• Targeted run-rate cost synergies of at least USD 50 million (GBP 40 million) by the end of the second full financial year post-completion.
• In addition, reflecting the strong complementarity of the two businesses, the combination is expected to generate revenue synergies of up to 10 percent of CP Kelco’s revenue over the medium term, underpinning the acceleration in top-line growth of the enlarged Tate + Lyle.

• Huber will become a long-term shareholder (approximately 16 percent) in Tate + Lyle following completion. The potential for Huber to become a long-term shareholder and participate in the future value creation from the combination of the two businesses was central to unlocking a transaction. Huber will be entitled to appoint two non-executive directors to the Tate + Lyle Board subject to Huber maintaining certain minimum shareholding thresholds in Tate + Lyle.
• The Proposed Transaction is expected to complete in the fourth quarter of the 2024 calendar year.

Strategic Rationale

• The Proposed Transaction combines two highly complementary businesses – Tate + Lyle, a leader in Sweetening, Mouthfeel and Fortification, and CP Kelco, a leader in pectin and speciality gums – to create a leading, global speciality food and beverage solutions business.
• Creates a leader in Mouthfeel, a critical driver of customer solutions, and strengthens Tate + Lyle’s expertise across its three core platforms of Sweetening, Mouthfeel and Fortification.
• The combined product portfolio, technical expertise and complementary category offering delivers a compelling customer proposition, significantly enhancing Tate + Lyle’s solutions capabilities and increasing the opportunity to benefit from growing global consumer demand for healthier, tastier and more sustainable food and drink.
• Expands Tate + Lyle’s offering in its large (USD 19 billion) and fast-growing (6 percent CAGR)speciality food and beverage ingredients addressable market, and unlocks further growth opportunities in its core and adjacent markets.
• Accelerates R+D and innovation through the combination of world-class scientific, technical and applications expertise, driving the development of new plant-based ingredients and solutions.
• The combination is underpinned by a shared purpose, values and culture, and a mutual belief in Tate + Lyle’s commitment to science, solutions and society.

Financial Effects

The Proposed Transaction accelerates the delivery of Tate + Lyle’s strategy to create a higher growth business underpinned by an attractive financial algorithm, including:

• Drive revenue growth towards higher-end of Tate + Lyle’s 4 percent-6 percent per annum ambition:
  • Industry growth: Increasing consumer demand for healthier, tastier and more sustainable food and drink.
  • Broader offering: Accelerate growth from complementary portfolios, platforms and categories.
  • Stronger capabilities: Enhanced capabilities to increase innovation and solution selling to customers.
• Drive significant adjusted Ebitda margin improvement over the next few years:
  • Cost synergies: Targeted run-rate cost synergies of at least USD 50 million (GBP 40 million) over the two full financial years following completion.
  • Margin improvement: Phased recovery in profitability of CP Kelco.
  • Solution selling: Margin accretive solution selling from two or more years.
• Target to consistently exceed 75 percent free cash flow conversion.

• The Proposed Transaction is expected to be accretive to adjusted earnings per share, including cost synergies only, in the second full financial year following completion, and strongly accretive thereafter.
• Return on invested capital (ROIC) expected to exceed Tate + Lyle’s weighted average cost of capital (WACC) in the fifth full year following completion.
• Targeted run-rate cost synergies of at least USD 50 million (GBP 40 million) by the end of the second full financial year following completion, with 50 percent – 60 percent (or circa USD 25 million) of cost synergies to be realised by the end of the first full financial year following completion. The cost to deliver these synergies is estimated to be around USD 75 million. There is also significant opportunity to accelerate revenue growth and, over the medium term, we are targeting revenue synergies of up to 10 percent of CP Kelco’s revenue.
• Net debt to Ebitda leverage anticipated to be approximately 2.3x at the financial year-end following completion, with strong cash generation thereafter. Tate + Lyle remains within its 1.0x to 2.5x long-term target net debt to Ebitda leverage range with the capacity and flexibility for further investment.
• No change to Tate + Lyle’s existing approach to capital allocation and dividend policy; Tate + Lyle remains committed to maintaining a strong and efficient balance sheet.
• The recently announced USD 270 million (approximately GBP 215 million) share buyback programme, previously to follow completion of the sale of the remaining interest in Primient, will start today.

Commenting On The Combination

Nick Hampton, Chief Executive, Tate + Lyle: «A combination with CP Kelco is the perfect fit with Tate + Lyle’s growth-focused strategy and purpose. It significantly strengthens our Sweetening, Mouthfeel and Fortification platforms, enhances our solutions capabilities across our four core categories, and unlocks new growth opportunities. Together, we will have a compelling customer proposition. With our leading portfolio of speciality ingredients and a world-class team of food science experts, we will be uniquely placed to provide our customers with the solutions they need to meet growing consumer demand for healthier, tastier and more sustainable food and drink.

«We’ve been collaborating with CP Kelco on innovation projects for many years and are very aware of their excellent products and the outstanding capabilities of their people. We are excited about the opportunities the combination will create for customers across the world, and the opportunities for employees in both companies to develop their careers across a broader global business.

«Following on from the announcement of the proposed sale of our remaining interest in Primient last month, the proposed combination with CP Kelco represents a significant acceleration of our growth-focused strategy. It creates a leading, global speciality food and beverage solutions business, ideally placed to benefit from the structural trends towards more plant-based, clean-label and sustainable ingredients and solutions. The growth potential of the proposed combined business is significant and we look forward to the future with confidence and excitement.»

David Hearn, Chair, Tate + Lyle: «Today’s announcement represents a major acceleration in the delivery of Tate + Lyle’s growth-focused strategy and the Board is very excited about the opportunities ahead. Our strong management team has all the right capabilities to drive significant value from this transaction for the benefit of our shareholders, customers and employees. We are delighted that, looking ahead, Huber will become a new long-term shareholder in Tate + Lyle. We look forward to welcoming their two new non-executive directors to our Board, and to working with them, and our other shareholders, to progress the enlarged company’s growth strategy.»

Didier Viala, President, CP Kelco: «We are delighted to be joining with Tate + Lyle to create a leading and differentiated speciality food and beverage solutions business. CP Kelco and Tate + Lyle are both highly customer-focused businesses with a shared passion for science and innovation. With our complementary portfolio and deep technical expertise, we will bring new value to our customers and new opportunities for our employees. This is an exciting time for our combined businesses.»

Gretchen W. McClain, President + CEO, J.M. Huber Corporation: «Together, Huber and Tate + Lyle are taking a bold and strategic move by creating a combined entity well-positioned with scale to be the driving force behind the future of food and wellness. Huber has been an excellent steward of CP Kelco for the past 20 years with a relentless pursuit to growing and creating value as a leading provider of nature-based, specialty ingredient solutions. This step unlocks the full value of CP Kelco and our long-term partnership as a shareholder in Tate + Lyle signifies Huber’s long-term desire to remain engaged in the attractive food and beverage market. Our collective rich histories and depth of experience combined with our shared purpose, values and commitment to our customers, employees, and communities will enhance future value for all stakeholders.»

Steps To Completion

The Proposed Transaction constitutes a Class 1 transaction for Tate + Lyle under the UK Listing Rules and is, therefore, as at the date of this announcement, conditional on the approval of Tate + Lyle’s shareholders. As indicated by the Financial Conduct Authority (‘FCA’), the UK Listing Rules are expected to change in the coming weeks, such that the requirement for a shareholder vote for a Class 1 transaction would no longer apply. The Proposed Transaction is not conditional on the approval of Huber’s shareholders. The Proposed Transaction is conditional on receipt of certain customary regulatory approvals. It is expected to complete in the fourth quarter of the 2024 calendar year.

Share Buyback Programme

On 23 May 2024, Tate + Lyle announced the intention to return the net cash proceeds of USD 270 million (approximately GBP 215 million) from the sale of its remaining interest in Primient to shareholders through an on-market share buyback programme. Previously, this programme was due to start following completion of the Primient sale, but it will now start now. We continue to expect completion of the Primient sale to occur before the end of July 2024.