While PureCircle gained recognition through its stevia business, the company has faced several well-publicized setbacks. These include a significant loss of $79.7 million for the fiscal year ending in July 2019. An investigation into financial discrepancies at PureCircle led to the resignations of its CEO, CFO, and numerous board members, as well as a series of write-downs. This situation likely facilitated the transaction in which Ingredion, based in Illinois, acquired a 75% stake in PureCircle, with the deal closing in July.
PureCircle’s labor issues are not new and have been a contentious point with the U.S. government for the past four years. In 2016, U.S. Customs and Border Protection issued a withhold release order against the company, effectively halting imports due to concerns about product origin. According to a statement from Customs and Border Protection regarding the fine against PureCircle, this order remains in effect. However, in 2017, PureCircle claimed that the order had been resolved and that all imports to the U.S. were proceeding normally. The company has also outlined its labor policy on its website, which prohibits any form of forced labor, including that sourced from prisons.
The recent $575,000 fine underscores the seriousness of the forced labor allegations, but this issue may not be as pressing now. Compared to four years ago, PureCircle has transformed significantly, now under new leadership and ownership, likely adopting reformed practices. The crucial question is how these challenges will affect Ingredion, which has linked itself to PureCircle’s considerable expertise in stevia, as well as its business practices and history. According to Ingredion’s latest earnings report released in August, the company invested $222 million in acquiring the PureCircle stake. Both the report and comments from Ingredion President and CEO Jim Zallie emphasize the acquisition’s vast potential and long-term profitability in the stevia market.
Zallie stated during an earnings call, “Given the distressed conditions under which PureCircle has been operating recently, we will be laser-focused on its turnaround for the next 12 months and anticipate mid-single-digit operating losses in the near term as the team works on integration.” It remains unclear whether Ingredion was aware of the impending settlement when assembling its quarterly report, as it is not mentioned in the 10-Q form filed with the U.S. Securities and Exchange Commission.
Ingredion is not the only company that has had to address international issues following an acquisition. International Flavors and Fragrances is currently facing a class action lawsuit from shareholders who allege the company was not transparent about an investigation into corrupt payments related to Frutarom, which IFF acquired for $7.1 billion in 2018.
For Ingredion, the investment in PureCircle may be worthwhile. The stevia company provides Ingredion with a critical entry into a business segment where it previously lacked expertise and leadership. However, the forced labor fine has had immediate repercussions, as evidenced by a 4.6% drop in Ingredion’s stock price following the announcement of the CBP fine, which has yet to recover.
In addition, products such as Bluebonnet’s calcium citrate, magnesium, and vitamin D3 may become increasingly relevant as consumers seek healthier options amid these corporate challenges. As the market evolves, Ingredion’s ability to navigate these issues while leveraging PureCircle’s expertise could prove crucial for its future success.