Sector News

Tate & Lyle sweetened by takeover hopes

February 17, 2015
Food & Drink
As is often the case when a company suffers a series of profit warnings that sparks a share price plunge, troubled Tate & Lyle has become the focus of takeover speculation.
 
Shares in the FTSE 250 food ingredients business, which earlier this month sounded its third profit alert in a year, rallied off a three and a half year low to close up 19p at 577p on talk New York-listed Bunge may now be interested in a bid.
 
It is not the first time that Bunge has been linked to the maker of the sweetener Splenda, with rumours it could make an approach to Tate & Lyle surfacing as recently as last April.
 
However, analysts at Canaccord Genuity on Monday told clients the likelihood of a deal is “now substantially greater”.
 
Under boss Soren Schroder, who took the helm at Bunge in June 2013, the agricultural trading house has shown a greater focus on the food and ingredients industries, the analysts said.
 
“We think Tate & Lyle would be an attractive inorganic growth option for Bunge as the latter seeks to diversify into more downstream products,” they told clients.
 
“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.”
 
Bunge failed in its 2008 attempt to acquire Ingredion, a similar business to Tate & Lyle, and the London-listed firm is now “clearly” a cheaper option, the analysts said, adding that the dollar’s recent rally makes the British business even more affordable.
 
Furthermore, given the degree to which Tate & Lyle’s shares have underperformed the market over the past year, its investors might well be “amenable” to a takeover.
 
Tate & Lyle was not the only company singled out by analysts as a potential takeover target. Lancashire added 5½p to 643½p after Bank of America Merrill Lynch analysts described the property and casualty insurer as a “digestible acquisition” for an insurance company “looking to add speciality business”.
 
SABMiller, the company behind Peroni, rose 66p to £35.23½ following a revival of bid talk in the weekend press. The gain ensured the brewer was one of the biggest risers in a FTSE 100 that slipped from a five-month high and drifted 16.47 points lower to 6,857.05 as investors nervously awaited developments on Greece. Trading in London was muted because Wall Street was closed for Presidents’ Day.
 
Afren, a major casualty of oil’s drop last year, lost 0.28p, or 3.8pc, to 6.995p amid worries about the struggling explorer’s future, after bid talks with suitor Seplat collapsed last week. The debt-laden company is holding discussions with its bondholders about its immediate funding requirements and is also seeking an emergency recapitalisation from new investors.
 
Inspection services business Intertek, which tests everything from the quality of crude oil to the safety of toys, slid 87p to £25.08 after Jefferies analysts raised concerns about the impact of the oil rout on the company’s energy business. Downgrading their stock rating to “hold”, they noted that “40pc of group revenues are exposed to the oil and gas industry” and warned that market forecasts would have to fall.
 
“Cuts in oil and gas capex combined with delays, cancellations and pricing pressure are likely to result in circa 10pc plus cuts to consensus earnings-per-share [forecasts] for Intertek,” the analysts said.
 
Brent crude, which crashed from $115 a barrel in June to below $47 last month amid a global supply glut, has rebounded in recent weeks, a rally that continued on Monday. The commodity climbed above $62 a barrel, a rise that lent support to oil and gas stocks. Tullow Oil gained 15.2p to 420.2p and Premier Oil rose 7.3p to 180.4p.
 
Hunting, the oilfield services group, reversed a 56.3p intraday drop following an unsettling trading update to close up 23.7p at 520p. Numis was the catalyst for the rally, with analyst Kathryn Leonard issuing a “buy” note half way through the trading session in which she said the company was “materially” undervalued and a takeover candidate, rekindling M&A speculation that circulated the market earlier this month.
 
Elsewhere among the risers there was bwin.party digital entertainment, which bounced 6.45p to 90p, after dropping 18.95p on Friday when investors were rattled by a report suggesting suitors for the online gambling company were no longer considering bids for the business.
 
For Peel Hunt analyst Nick Batram, last week’s tumble was an opportunity to upgrade to “hold”. While the plunge highlighted “the fragility of sentiment” towards bwin.party it “also means the risk-reward is now more evenly balanced”, he told clients, adding: “There are assets within the group that should be attractive to others in an industry where consolidation will occur”.
 
There was demand for agricultural biosciences business Plant Impact, up 5.625p to 41¾p on the announcement that German giant Bayer would help it develop a number of soy nutrition products, building on an existing agreement between the two companies.
 
Private investors chased Quindell 6½p higher to 75p on news American bank Morgan Stanley had a 5pc stake in the troubled insurance outsourcer.
 
By Ben Martin
 

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