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Tate & Lyle is betting that a backlash against ultra-processed food will provide a “big opportunity” as it makes its largest ever acquisition of an ingredients company, a deal it says will help it produce healthier but tasty products.
The UK company said on Thursday it was buying CP Kelco, a provider of pectin and speciality gums, for $1.8bn from US chemicals group JM Huber in a cash-and-shares deal.
Tate & Lyle said strengthening its so-called “mouthfeel” solutions — the ingredients which create texture in combination with taste in food — would help it create more and healthier versions of its products.
Chief executive Nick Hampton argued that the problem with ultra-processed foods (UPFs) was about the lack of nutritional content rather than the processing itself — and that Atlanta-based CP Kelco’s technologies would help them develop new products addressing this.
“I see [the backlash] as a big opportunity for our business,” Hampton said. “It’s hard to argue that a lot of ultra-processed food sold today is not nutritionally balanced . . . [The acquisition] is about extending capability and therefore making us a better partner for customers.”
For example, the pectins and emulsifiers produced by CP Kelco will allow Tate & Lyle — which makes sweeteners such as Splenda and ingredients such as starches and sucrose — to offer the option of fruit-based versions of low-fat, low-calorie yoghurts. Hampton said the deal would also improve the formulation of ingredients for the products they end up in, such as creating less-sugary ketchup.
However, he acknowledged that the deal would also help Tate & Lyle service new categories such as confectionery, saying this has “a massive sugar replacement challenge”.
Hampton’s remarks come amid a mounting scrutiny over UPFs, which include flavoured yoghurts, ready meals and sweet snacks, as a growing body of scientific research links them to obesity, cancer, heart problems and Type 2 diabetes.
“Processed food is going to play a critical role in feeding a growing population sustainably and affordably in a more nutritious way,” argued Hampton.
As part of the deal, family-owned JM Huber will become a long-term shareholder in Tate & Lyle with a 16 per cent stake, while also being entitled to appoint two non-executive directors to the company.
It will also boost Tate & Lyle’s presence in growth markets such as Asia, the Middle East and Africa, and Latin America, where roughly 60 per cent of the world’s population lives.
Analysts at Barclays said the deal looked “a good fit in terms of scope and size with a reasonable valuation multiple”, but added that “the market will want reassurance that the recent volume decline and margin pressure at CP Kelco reflects cyclical not structural factors”.
Shares in Tate & Lyle fell as much as 12.3 per cent before staging a partial recovery in afternoon trading.
