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Will payment be sweet for Tate & Lyle?

24-Jun-2004

UK ingredients maker Tate & Lyle faces paying out a hefty sum as the sweetener firm seeks to settle a US lawsuit alleging that its US unit AE Staley played a role in fixing the price of high fructose corn syrup, a sweetener used extensively in carbonated soft drinks.

Speculation as to the total figure arose earlier this week when Archer Daniels Midland (ADM), one of Tate's major competitors in the US HFCS market and a co-defendant in the case, announced it had agreed to pay $400m (€331m) to settle the lawsuit. In February US agribusiness Cargill, and the third co-defendant, agreed on $24m (€19.8m) without admitting liability.

Ignited in the early 1990s the settlement has its roots in a law case filed by over 20 plaintiffs, including soft drink giants Coca-Cola and PepsiCo, that accused the sweetener businesses of linking up to fix prices of the sugar substitute.

 

The class-action lawsuit filed in 1995 alleged that ADM's actions cost them $1.6 billion. The case had been scheduled for a September jury trial and ADM could have faced damages three times this amount at nearly $5 billion, as jurors could have tripled any award if they found the company guilty.

 

"We are pleased to have reached a resolution with our customers in the food and beverage industries," said G. Allen Andreas, chairman of ADM.

 

When Tate & Lyle announced its annual results earlier this month the firm, referring to the lawsuit, said it would continue "to seek a negotiated resolution of the claim so as to avoid facing the cost and uncertainty of a US jury trial." Adding that 'although there is no certainty that it will succeed in reaching a settlement, nor as to the amount of any settlement.'

 

ABM Amro, Tate & Lyle's broker, played the potential settlement figures down, not 'necessarily expecting that Tate will face the same liability,' because ADM's US HFCS market share of 41 per cent is significantly greater than Tate's 15 per share, 'and its payment may reflect other factors.'

 

However, writing about the ADM deal Duncan Fox, an analyst at ABN Amro, reported 'that the scale of the ADM settlement is likely to raise concerns about the size of any settlement Tate may make.'

 

High fructose syrups, known as isoglucose in Europe, kicked off in the US in the 1970s when the country developed new technologies to process this bulk calorific sweetener. The ingredient, an alternative to sucrose, rapidly gained in popularity and is now used extensively by the soft drinks giants Coca-Cola and Pepsi-Co.

 

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