By Steve Goldstein
Tate & Lyle shares rose as much as 7% on Monday after the food and ingredients maker said it was in talks to sell most of its primary products division.
The announcement from Tate & Lyle /zigman2/quotes/205109332/delayed UK:TATE +1.96% came after the Sunday Telegraph reported it has held talks on auctioning the artificial sweetener making unit off for £1.2 billion ($1.66 billion), possibly to a private-equity firm.
Analysts were excited about the prospect of Tate & Lyle’s food and beverage solutions unit trading as a separate entity. Analysts at Barclays Capital said even at 18 times enterprise value/earnings before interest and tax, the unit still would trade at a discount to Kerry /zigman2/quotes/202059924/delayed IE:KRZ +2.32% , DSM /zigman2/quotes/205433811/delayed NL:DSM -0.44% and Symrise /zigman2/quotes/207710023/delayed XE:SY1 +0.89% .
In the six months to Sept. 30, the food and beverage solutions arm recorded an adjusted operating profit of £98 million on revenue of £475 million, and the primary products unit recorded an adjusted operating profit of £83 million on revenue of £842 million.
A clean exit might not be possible, and Tate & Lyle implicitly acknowledged this by saying it is in talks to sell a “controlling” stake. Analysts at Jefferies point out that two major U.S. plants for Tate & Lyle make products both for the primary products as well as food and beverage solutions division. Another issue, the analysts noted, is that Tate & Lyle currently benefits from the ability to offset U.K. tax losses against U.S. profits, a benefit it wouldn’t enjoy as much in a joint venture scenario.
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.19% meandered on Monday, ahead of a big week for earnings including the latest results from electric vehicle maker Tesla /zigman2/quotes/203558040/composite TSLA -6.42% after the close of trade on Wall Street. In early afternoon trade, the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX +1.19% rose 0.3%, just 1% below its April 19 high.
Also on the move, U.K. engineering group IMI /zigman2/quotes/203470444/delayed UK:IMI +1.83% rallied 11% after lifting its earnings guidance by 7% and launching a £200 million stock buyback program.