Kingsmill owner Associated British Foods has inked a deal to acquire Hovis Group from private equity firm Endless LLP, in a move designed to reshape its struggling UK bakery business, Allied Bakeries.
Revealing the deal this morning (15 August), after months of speculation, ABF said the acquisition would merge the Hovis and Allied Bakeries production and distribution activities, driving “significant cost synergies and efficiencies” to create a more competitive and sustainable business.
Today’s move follows ABF’s strategic review of Allied Bakeries, which has been faced increasing profitability challenges due to a decline in demand for pre-sliced, packaged bread and and a loss of scale in the company’s nationwide distribution network, which serves the major retailers.
Neither party has disclosed the terms of the deal.
“This transaction will create a UK bakeries business that is both profitable and sustainable over the long term,” said ABF CEO George Weston.
“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.”
Read more: Three reasons ABF is now talking to Hovis about Kingsmill
Allied Milling & Baking CEO Sarah Arrowsmith said she was excited that after “many years of focusing on reducing cost”, the business would be able to “invest in people, in great value and relevant innovation”, as well as “a lower carbon and more efficient delivery fleet”.
“The transaction will allow us to justify fresh investment and innovation with new products to respond to changing consumer preferences, resulting in more choice for customers and consumers,” she added.
However, Arrowsmith declined to be drawn on where efficiencies could be made post-merger.
“That is a lot of trading between now and then. We do have a business plan, but we’ll take a view on synergies over time as Hovis and AB trading evolves,” she said.
Shaking up Britain’s bakery brands
Bringing together Britain’s second and third-largest bread brands, the merger has been on the cards since May this year, when ABF first said it was in discussions with Hovis. Once combined, the two brands may still not beat market leader Warburtons, whose market share reached 45% in the year to 22 February 2025, compared to Hovis’ 32.5% and Kingsmill’s 9.7% [NIQ 52 w/e 22/02/2025].
Hovis has also been struggling in recent months, with brands being delisted by many of the major retailers. It confirmed talks of a merger in early July alongside its 2024 annual results, where turnover fell 8.6% to £446.8m in the year to 28 September 2024, and pre-tax losses deepened to £4.7m.
The merger will aim to revitalise and stabilise both the Hovis and Kingsmill brands, allowing the new business to expand into new product ranges that reflect changing consumer tastes in the bakery category.
James Watson, UK partner at transformation consultancy Argon & Co, said a “significant upside” of the new business would see it developing its own high-margin, specialty offering, although he also cautioned that this must be balanced against a “clear value proposition to defend market share against own-label competition, while innovating in new product formats to capture growing demand for convenience”.
Analysts have been largely positive about the deal, with Panmure Liberum’s Anubhav Malhotra stating the deal had the potential to create a profitable post-merger business which could “unlock significant cost efficiencies… particularly in distribution”.
Allied Bakeries currently operates six bakeries in England, and one in Northern Ireland, all but one of which run their own on-site distribution centre. The firm also runs six standalone distribution centres across the UK.
Completion of the transaction remains subject to regulatory approval, which ABF expects to take a year or more. During that time the two businesses will continue to trade separately and competitively.
While CMA scrutiny was “likely”, according to Malhotra, eventual approval is expected.
“We expect the regulator to take the view that, in the absence of a merger, only one of the two companies would survive, thereby reducing competition in any case,” he said.
Shore Capital’s head of consumer research, Clive Black, agreed there was a “firm basis” for approval, while warning against trying to predict any outcome given an “unpredictable and unreliable” watchdog.
No comments yet