Tate & Lyle Shares Rise Amid Takeover Rumors by Bunge

18 Feb 2015 --- Financial analysts have changed their recommendation from ‘sell’ to ‘buy’ Tate & Lyle shares, following rumors that US commodities and ingredients firm Bunge is on the cusp of making a US$6.8 billion (£4.4 billion) offer for the British sugar company.

Tate & Lyle has made three profit warnings in the past year, but city analysts say the worst may be over for the company, as a strong dollar, a low valuation of shares and strengthening corn prices may entice Bunge to invest.

The group issued its first profit warning of the past year nearly 12 months ago, when it reported a big drop in prices of its sucralose artificial sweetener and weak sales in developed markets.

Analysts Canaccord Genuity raised its target price from 530p to 650p and said that the company was ‘looking sweet’. It said that Bunge could pay up to 781p/share. This is not the first time that Bunge has been named as a possible buyer for Tate & Lyle, but analysts think that now is the right time. 

Canaccord told it’s clients in a statement: “A potential bid from Bunge is now substantially greater in our view, given Tate’s lowered valuation, a strong US dollar, low interest rates, a good strategic fit and shareholder dissatisfaction with Tate. Tate would provide greater exposure to value added ingredients and expand Bunge’s presence in corn milling, an area of long term interest to the company (c.f. the failed bid for Ingredion in 2008).

“We think Bunge could afford to offer a 40% premium to the current Tate share price....which would be 19% accretive to Bunge and reduce group return on invested capital by only 120 basis points in the current year, assuming (conservatively) that none of Tate’s profits [from existing joint ventures with other partners] are retained."

Tate & Lyle would bring to Bunge 16 corn processing facilities, an oat processing facility, 10 ingredients production and blending sites, and 15 research and development sites.

Tate & Lyle refused to comment on a possible takeover. When asked if the company was for sale, a company spokeman told FoodIngredientsFirst: “We have no comment to make at this time.”

by Kelly Worgan