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Tate & Lyle could see higher share rating but lower dividends
Investors might be prepared to pay a higher earnings ratio for sweeteners-to-ingredients giant Tate & Lyle (TATE) once it completes the sale of a controlling stake in its lower growth Primary Products business to private equity firm KPS Capital Partners for $1.3 billion.
By concentrating solely on its faster growing Food and Beverage Solutions business, Tate & Lyle will tap into the growing global consumer demand for healthier food and drink.
The FTSE 250 food producer believes the break-up will strengthen its attractiveness as a partner to other speciality ingredients businesses, reduce its exposure to commodities markets and by bolstering the balance sheet, create ‘a platform to refocus capital towards delivering stronger organic and inorganic growth’.
Tate & Lyle and KPS will each own half of steady free cash flow generator NewCo, which will be able to pay ‘meaningful dividends over time to Tate & Lyle’, which will need to rebase its dividend by around 50% to reflect a smaller earnings base post-sale.
However, Tate & Lyle still plans to return $500 million to shareholders via a special dividend, and undertake a share consolidation, once the deal completes, before maintaining a progressive dividend policy thereafter.