Kingsmill owner agrees to buy Hovis in deal paving the way for Britain’s biggest
Britain’s biggest bread brand is on the brink of being created after Kingsmill’s owner agreed to buy rival Hovis Group.
If Britain’s competition watchdog gives the deal the green light, future job cuts could be on the cards, though no details have been announced.
The deal would mean Britain’s second and third largest bread brands would be merged. Warbutrons is Britain’s market leader in the bread-making sector.
Associated British Foods has agreed to buy Hovis from private equity group Endless in a deal thought to be worth around £70million.
The deal came after ABF, which owns Primark, launched a review of its strategic options for its loss-making Allied Bakeries arm.
On Friday, ABF said the deal would result in the merging of the production and distribution operations of the two bakery businesses. The aim of this merging of operations is to cut costs and boost efficiencies, ABF said.
Big bread brand: Britain’s biggest bread brand is on the brink of being created after Kingsmill’s owner agreed to buy rival Hovis Group
It comes three months after ABF first confirmed talks over a potential deal.
‘This transaction will create a UK bakeries business that is both profitable and sustainable over the long term,’ ABF chief executive George Weston said.
The deal is subject to regulatory approval. It will be scrutinised by the competition authorities given the combined bread market share of Allied Bakeries and Hovis.
The Competition and Markets Authority will have to decide if the brands face sufficient rivalry on price and quality from supermarket own labels and other options as well as Britain’s current market leader, Warburtons.
However, the CMA is under pressure from the government to help support growth.
ABF said the combined business would have a stronger platform for innovation in faster-growing segments of the bakery category, responding to changing consumer tastes with improved existing products and new ranges.
ABF said on Friday: ‘The combined business will be better placed to compete effectively and to establish a stable platform for product innovation in the segments of the UK bakery category that are growing as a result of changing consumer tastes and needs.’
The food firm also said the deal would lead to the expansion of new product range and improvements in current products.
George Weston, chief executive 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.’
Hovis, which was founded in 1890, was bought by Endless in 2020 from Premier Foods, which owns the Mr Kipling brand.
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.’
He added: ‘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.’
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