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- Kingsmill owner ABF confirms discussions with Hovis owner Endless
- A tie-up would create a bread firm with biggest UK market share
The owners of Kingsmill and Hovis are in talks over a potential deal that could see the merger of two of Britain’s biggest bread brands.
Associated British Foods, which owns Kingsmill’s parent company Allied Bakeries, on Tuesday confirmed media reports revealing talks over the weekend and reiterated the ‘very challenging’ market conditions faced by the brand.
The group, which also owns Primark, told shareholders last week it was evaluating strategic options for Allied Bakeries amid a decades-long decline in the sale of supermarket loaves.
Sky News revealed the talks on Saturday, citing the potential for a deal to be structured as an acquisition of Hovis by ABF.
However, ABF is said to be exploring other options for the future of Allied Bakeries, including deals not involving Hovis.
ABF said it was ‘in discussions’ with Hovis owner Endless, an investment fund, but there can be no certainty that a transaction will be included.
‘A further announcement will be made as and when appropriate,’ it added.
Scrutiny: Any deal could face obstacles from Britain’s competition watchdog
The UK bakery market is estimated to be worth around £5billion in annual sales, with the equivalent of 11m loaves being sold each day.
But changing dietary habits and higher prices have pushed the market into contraction over recent years.
Any deal could face obstacles from Britain’s competition watchdog, which would likely probe the consequences of reducing the country’s major bread market players from three to two firms.
Warburtons is the market leader with a 34 per cent stake of the wrapped sliced bread sector, while Hovis hold 24 per cent and Allied is on 17 per cent.
Head of consumer research at Shore Capital Clive Black said Allied Bakeries has faced a ‘highly competitive and oversupplied British plant bread sector for some years now’, leading to substantial losses.
Allied Bakeries’ accumulated costs and losses could be as much as £750millon, according to Black, with estimates losses of £30million a year.
Black said: ‘What the Competition & Markets Authority may make of matters remains to be seen.
‘Allied has not only been a perennial challenge for ABF, it has also been a highly costly one, and so a better solution should be welcomed by shareholders.’
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Kingsmill and Hovis owners in potential bread megamerger talks
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