Tate faces takeover talk

Tate faces takeover talk

UK sugar and ingredients group Tate & Lyle should rethink its corporate strategy in order to improve its performance and see off any potential takeover bid, analysts at Icap have suggested.

The company today (28 January) said that it expected full-year earnings to drop year-on-year after third-quarter profits missed targets.

In its interim management statement, Tate & Lyle attributed the third-quarter failure to meet expectations to lower industrial sales volumes at its food and industrial ingredients business in the Americas.

Under former CEO Iain Ferguson, Tate & Lyle sold off a raft of assets and looked to focus on value-added food ingredients.

However, it appears that such a strategy has had its limitations and over the past few years Tate & Lyle has been forced to issue a number of profit warnings. Profits at its sugar and ingredients businesses have been hit by volatility on the global commodities markets and lower demand.

Since taking the helm in October, current chief executive Javed Ahmed is yet to significantly alter the company's cause, instead insisting that his short-term concern is to boost the group's fiscal discipline and improve its capital management.

In November, Tate & Lyle issued GBP200m (US$322.7m) ten-year bonds to refinance maturing loans and reduced its debt levels by GBP123m during the quarter.

However, in an investor note analysts at Icap have claimed that Tate & Lyle must also address deeper structural issues and reassess its corporate strategy.

"A rethink of [Tate's] corporate strategy is overdue," Icap analysts insisted in an investor note.

"One option that Ahmed may ponder is to exit sugar and use the cash proceeds to beef up the group's food ingredients and bio-strategy, which we see as both under-exploited and undervalued in technology terms," the analysts wrote.

According to Icap, this would help Tate avoid the becoming a potential takeover target – a risk that is enhanced by the company's poor financial performance and consequent low share price.

Noting a “bout” of takeover speculation surrounding the group, Icap said that interested parties could include Associated British Foods, Sudzucker and Nordsucker.