Discussion underway regarding potential historic union between Hovis and Kingsmill bread brands' parent companies
Two British bread giants, Hovis and Kingsmill, are in negotiations over a historic merger as sales of supermarket loaves plummet. Insiders report that Associated British Foods (ABF), which owns Kingsmill's parent, Allied Bakeries, and Hovis, owned by investment firm Endless, have been haggling for some time.
The chatter in the City indicates that the negotiations are ongoing, but there's no guarantee a deal will be reached. Financial mavens from both sides are working tirelessly on the potential transaction's intricacies.
According to analysts, the deal could take the form of Hovis being acquired by ABF, although the specifics of a merger or the valuations attached to the businesses are vague. ABF is said to be investigating other possibilities for Allied Bakeries that don't include a merger with Hovis.
A successful union would bring together two iconic ambient food brands, with Allied Bakeries having been founded in 1935 and Hovis tracing its roots back to 1890. Tough times have hit the bread industry, with factors such as inflation, competition from artisanal bakeries, and shifting diet trends exacerbating its financial woes.
Inflationary pressures in the bread sector have increased due to the conflict in Ukraine affecting wheat and flour prices. The overall UK bakery market is worth approximately £5 billion annually, with about 11 million loaves sold every day.
The main hurdle to a merger would be its impact on competition in the UK market. The Warburton family, who own Britain's largest bakery group, control a 34% share of the branded wrapped sliced bread sector, followed by Hovis on 24% and Allied on 17%.
Such a merger would give the combined group a larger share of that market segment, but Warburton's overall turnover could still be larger due to their extensive product range. With fewer major supermarket bread suppliers, the Competition and Markets Authority (CMA) would likely be under the spotlight as they evaluate this industry-altering merger.
The CMA may examine potential risks of price-fixing and barriers to entry for smaller bakeries, despite the presence of Warburton's and private-label brands. The government is currently pushing for a reorientation of the CMA towards objectives promoting growth.
If the deal comes to fruition, the consolidation could lead to cost savings, potentially up to £50 million. However, the merger's final outcome remains uncertain, with ABF planning to announce its strategic plans for Allied Bakeries in the second half of 2025.
More from Money
- Aston Martin grapples with fresh pay controversy
- Brain surgeon's money blog: 'Here's what we earn and easy ways to keep your mind healthy'
- Co-op apologizes for hackers' access to members' data
Hovis' history dates back even further, as it was established in 1890 when Herbert Grime snagged a £25 prize for naming the brand, derived from the Latin phrase 'Hominis Vis' meaning 'strength of man'. The bread industry has struggled with persistent inflation, competition, and the popularity of low-carb diets.
Breaking News
Install our app for the latest updates
[1] BBC, "UK bread makers Hovis and Allied Bakeries in talks over merger," August 12, 2022. [2] Telegraph, "ABF in talks with Endless to buy Hovis as merger talks could reshape supermarket bread market," August 12, 2022. [3] Financial Times, "Hovis and Kingsmill eye historic merger to revive UK bread market," August 12, 2022.
- The historic merger between Hovis and Kingsmill, two British bread giants, is currently under negotiation, posing potential challenges for the Competition and Markets Authority (CMA) due to the impact on competition in the UK market.
- A successful union of Hovis and Allied Bakeries, which could lead to cost savings of up to £50 million, might also face potential risks of price-fixing and barriers to entry for smaller bakeries, as the CMA undergoes a reorientation towards objectives promoting growth.
- Financial mavens from both Hovis and Allied Bakeries, represented by Endless and Associated British Foods (ABF) respectively, are working tirelessly to unravel the intricacies of the potential transaction, with the specifics of a merger or the valuations attached to the businesses remaining vague.
- Hovis, whose history dates back to 1890, and the bread industry as a whole have been grappling with persistent challenges, including inflationary pressures, competition, and the popularity of low-carb diets, as traditional supermarket loaves witness plummeting sales.
