- Deal will see two big bread brands combine
- Subject to regulatory scrutiny
- ABF shares up 10% year-to-date
Primark discount clothing chain owner Associated British Foods (ABF) announced the acquisition of Hovis Group from private equity firm Endless for an undisclosed sum. Some news articles have referenced a £75 million cash consideration.
The purchase comes after the company said it had been ‘evaluating a range of strategic options’ for its UK bakery business Allied Bakeries which had been ‘increasingly challenged’ by a fall in demand for pre-sliced, packaged bread.
The deal will result in the second and third biggest bread brands Hovis and Kingsmill combining under common ownership.
The shares were marginally higher on the news in mid-morning trading at £22.80.
WHAT DID THE CEO SAY?
George Weston, CEO of ABF, said: ‘This transaction will create a UK bakeries business that is both profitable and sustainable over the long term.
‘Supporting the Hovis and Kingsmill brands with well-invested and efficient operations will also enable innovation and growth.
‘This solution will create value for shareholders, provide greater choice for consumers and increase efficiencies for customers.’
STRONGER POSITION
Russ Mould, investment director at AJ Bell said: ‘Associated British Foods will hope it can get the best of both businesses as it agrees to buy Hovis from private equity firm Endless and add it to its existing bakery holding Kingsmill.
‘These brands have struggled against the market leader Warburton of late and neither is making money right now, the hope is that by combining they will be in a much stronger position.
‘The danger is the regulator gets involved. Bread is a staple for most households and there might be some perceived risk that the deal would leave consumers out of pocket.
‘Primark-owner ABF’s conglomerate structure has come under renewed focus this year. Its discount clothing chain has struggled a touch, as have other parts of the business including its sugar arm.
‘The company, and the controlling Weston family, continue to extol the virtues of diversification but for this to be sustainable then all parts of the group need to be in reasonable shape – this deal could help put the Allied Bakeries division in a better place.’
Analysts at Panmure Liberum said: ‘ABF’s acquisition of Hovis will unlock significant synergies in production and distribution and provide the platform to invest in innovation. Both businesses currently generate substantial operating losses - £30 million for Allied Bakeries and £6.9 million for Hovis in full year 2024, but a merger has the potential for turning the combined businesses profitable.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Martin Gamble) own shares in AJ Bell.
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