Sector News

Reuters: J&J hires Goldman to explore sale of Splenda – sources

December 5, 2014
Life sciences
(Reuters) – U.S. healthcare company Johnson & Johnson (JNJ.N) has hired Goldman Sachs (GS.N) to explore a sale of its artificial sweetener brand Splenda, sources familiar with the matter told Reuters.
Such a move would let Johnson & Johnson, maker of prescription drugs, medical devices and baby shampoo, exit a business beset by weakened soft drink sales and intense competition.
The process is at an early stage, with prospective buyers signing non-disclosure agreements, one of the sources said on Wednesday, speaking on condition of anonymity because the matter is private.
Johnson & Johnson (J&J) and Goldman Sachs declined to comment.
The business, which has annual revenue of around $300 million, could attract interest from private equity buyers because it generates strong cash flows and good margins, according to the sources.
“But there is no obvious strategic buyer (from the food or ingredients sectors) because high-intensity sweeteners are not that attractive at the moment,” according to one of the sources.
Splenda, an artificial sweetener made from sucralose, was jointly developed by J&J subsidiary McNeil Nutritionals and British ingredients firm Tate & Lyle (TATE.L), which continues to supply the sucralose.
Tate, which also declined to comment, in September forecast sucralose prices would be down about 25 percent this year, saying it had to renegotiate supply contracts at lower prices to protect market share from cheaper Chinese rivals.
At the same time, sucralose sales have been pressured by declining demand for carbonated soft drinks in markets such as the United States, due to changing consumer tastes and greater health consciousness.
“I’d imagine those kinds of businesses wouldn’t attract a huge (price) multiple in today’s environment,” said Declan Morrissey, an analyst at Davy Research, which follows Tate & Lyle but not J&J.
“You can use carbonated soft drink volumes as a proxy for sucralose volumes and they’ve been falling by low single-digits for the last 12 to 24 months. So you’ve got a top-line volume component that’s struggling and then pricing that’s off 20 to 30 percent.”
One potential bright spot for the sweetener market is in natural sweeteners such as stevia, derived from a South American shrub. Coca-Cola (KO.N) and PepsiCo (PEP.N) have recently launched stevia-sweetened versions of their flagship colas.
Merisant, maker of rival sweetener products Equal and Canderel, was in October sold to licorice ingredients maker Flavors Holding for an undisclosed sum.

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