Associated British Foods (LON: ABF) has confirmed a £75m takeover of bakery giant Hovis, merging it with Allied Bakeries to create the UK’s largest bread brand.
ABF, which has been listed on the FTSE 100 since 1994, is owned by the Westons, Britain’s sixth-richest family, and has historically balanced food with fashion.
The group earlier announced plans to offload Primark, the fast-fashion retailer that accounts for nearly half of its total revenue.
The strategic pivot leaves ABF focused squarely on its food empire, which includes household names such as Twinings, British Sugar and Patak’s.
The merged entity will operate under the name Hovis Bakeries and will represent the most significant consolidation in British bread manufacturing in years.
The deal was initially paused by the Competition and Markets Authority over concerns it would reduce options for British consumers, before regulators ultimately approved it.
The CMA greenlighted the merger amid fears that ABF would exit the bread market entirely if the deal had been blocked.
Chief executive George Weston said the acquisition will fire up the firm’s bread arm as it attempts to return to growth, after Allied Bakeries weighed on overall profit amid a “challenging market”.
Hovis Bakeries now faces a formidable rival in Warburtons, the 150-year-old family-owned bread brand, which recently posted a 33 per cent jump in profit before tax to £42m, with volumes growing by four per cent.
Panmure Liberum analyst Anubhav Malhotra told City AM that adding a third to profits in a sector as competitive as British baked goods “doesn’t normally happen.”
“They are clearly doing something very, very well which is basically giving customers the products that they want and investing in innovation and marketing,” Malhotra added.
Warburtons has successfully adapted to shifting consumer tastes, moving away from regular bread toward alternatives like crumpets and wraps, according to Malhotra.
The brand has also responded to the social media-driven surge in demand for fibre and protein-rich foods through new product ranges and targeted marketing campaigns.
Hovis, by contrast, “has been losing its way for a while,” Malhotra said, adding: “If you go to the Hovis website and see the list of products that they have, there’s nothing that mentions protein, there’s nothing that mentions fiber.”
Malhotra believes Hovis Bakeries can generate significant savings through streamlined joint operations and should reinvest those funds into consumer-friendly products and marketing.
Clive Black, a director at Shore Capital, told City AM the merger “should help further rebalancing and bring superior operations and economics to ABF in two to three years time.”
While Allied Bakeries has been a “running sore” for ABF, Black notes the wider business faces additional challenges, including a projected full-year loss of as much as £60m in its sugar operation.
ABF attributed the sugar losses to the ongoing Middle East conflict, stating: “The duration and severity of the Middle East conflict have increased gas price expectations for next year, which has impacted our European profit outlook.”
Black struck an optimistic tone on the longer-term competitive landscape, saying a stronger Hovis and a “still motoring” Warburtons “should make for a shopper win with more innovation coming through and the benefit of competition.”