Hovis and Kingsmill Bread Companies Discussing Potential Merger
Two titans of the British bread world, Hovis and Kingsmill, are reportedly in talks about a potential merger. According to Sky News, Associated British Foods (ABF) - the parent company of Kingsmill's Allied Bakeries, and investment firm Endless, which owns Hovis, are engaging in discussions.
The specifics of the deal remain unclear, but one potential scenario could see ABF acquiring Hovis. Bankers from both sides are believed to be involved, working on a potential transaction.
The merger, if it happens, could bring together two of the UK's oldest food brands, both steeped in history. Allied Bakeries was established in 1935, while Hovis was born in 1890. Notably, Hovis' current CEO, Jon Jenkins, was once the boss of Allied.
The bread industry has been grappling with numerous challenges, including those brought about by inflation, competition from speciality producers, and the popularity of low-carb diets. ABF, a FTSE 100 giant that also owns Primark, acknowledged these struggles during its recent interim results, stating that Allied Bakeries had faced a "very challenging market."
Wheat and flour prices have surged due to the ongoing war between Russia and Ukraine, with Hovis citing these inflationary pressures in its 2021 accounts. Currently, Warbutons, another bakery giant, is estimated to hold a 34% share of the branded wrapped slice bread sector in the UK. Hovis and Allied are understood to command 24% and 17% respectively. A merger between the two could propel them to the top spot, potentially attracting the attention of the Competition and Markets Authority (CMA).
The potential merger could have far-reaching implications for the bread industry, from potentially reducing competition and leading to higher prices to creating opportunities for fresh produce and alternative food sectors to fill the nutritional gap left by traditional bread. If the merger proceeds, it would likely be subject to scrutiny by the CMA to ensure it doesn't harm competition or consumer choice.
In a potential merger, the combined entity could reap efficiency gains through cost savings and operational integration. However, let's not forget that the road to CMA approval might not be easy, with the regulator likely to examine the potential impact on the competitive landscape, barriers to entry, and potential price increases. If substantial concerns are raised, a more detailed investigation might be initiated.
All eyes will be on the merger corridor as this potential deal unfolds, waiting to see if it manages to navigate the CMA's scrutiny while securing strategic benefits for both parties.
The potential acquisition of Hovis by Associated British Foods (ABF), if successful, could signify a significant shift in the UK's bread industry, given ABF's position in various sectors such as manufacturing, finance, and business. With both Hovis and Allied Bakeries exhibiting impressive histories and market shares, this merger could potentially create a dominant force in the industry. However, the road to approval by the Competition and Markets Authority (CMA) might be complex, considering the potential consequences for competition, consumer choice, and market stability.
