Tate & Lyle should consider a sale of its sugar division if it wants to avoid the risk of a takeover, Icap analysts have said, amid growing conjecture that the sweeteners group will become the next UK bid target.

Icap, noting a "bout of speculation" of an offer for Tate, said the company had "significant value to be unlocked" - City shorthand for a group potentially worth more if broken up than in its current form.

Javed Ahmed, appointed chief executive in October, should consider the sale of Tate's legacy sugar business to see off the predators who have already snapped up one historic UK name, Cadbury, which has been bought by America's Kraft.

"One option that Ahmed may ponder is to exit sugar and use the cash proceeds to beef up the group's food ingredients and bio-strategy [operations], which we see as both under-exploited and undervalued in technology terms," Icap said in a note.

Potential bidders 

The recovery in the global sugar markets made this an opportune time to sell the business, with potential buyers including Germany's Sudzucker or Nordsucker, or Tate's UK rival, Associated British Foods.

"ABF may be interested in scaling-up its sugar business," the report said, adding that recent investments in Spain's Azucarera and South Africa's Illovo Sugar showed the company "has the financial firepower to pursue Tate's sugar division".

Precedents of sugar monopolies in countries including Denmark, Finland, Spain and Sweden signalled that anti-trust concerns may not prove deal-breaker.

"A rethink of [Tate's] corporate strategy is overdue," Icap added.

Speculation history 

Tate & Lyle has been the subject of intermittent takeover gossip, including speculation in 2007 of a 1,000p-a-share bid from a private equity firm.

In 2008, the purchase by Harbinger, a US activist hedge fund, of a near-19% stake accompanied rumours of a takeover by one of America's big agricultural groups, such as Archer Daniels Midland.

Harbinger has since sold down its stake to 9.2%.

Sweetener concerns

Icap's note comes the day before Tate is to report on third quarter trading. Analysts are particularly interested in comments on the market for high fructose corn syrup, whose prices have been undermined by health fears.

In a separate note on Wednesday, Credit Suisse analysts said: "Attention will focus on the final out turn of the US annual sweetener negotiations.

"Our understanding is that these were decidedly disappointing with prices off as much as 20%, as sellers chased volumes in a declining market."

Tate & Lyle shares closed up 0.2p at 407.1p in London.