Associated British Foods is in talks with private equity firm Endless LLP about a potential deal for the food group's Allied Bakeries business, in a move that could bring together two of Britain's best known bread brands, Kingsmill and Hovis.
Primark owner AB Foods has been looking at strategic options for loss-making Allied Bakeries after the Kingsmill maker lost a contract with British supermarket leader Tesco.
Sky News reported over the weekend that AB Foods and the 135-year-old Hovis brand were negotiating a landmark industry deal that in turn is expected to attract scrutiny from the competition watchdog because it would bring together the UK’s second- and third-biggest breadmakers, creating a new market leader, ahead of Warburtons.
AB Food's shares were up 1 per cent on Tuesday (6). Its stock has lost about 21 per cent of its value in the past year.
Lower sales and losses at Allied Bakeries, which also makes Allinson’s and Sunblest products, have been a drag on AB Food's performance.
Last week, the London-listed firm reported a 10 per cent drop in first-half profit, which also reflected weakness in its sugar business. The company said last week it expected to give an update on its review of Allied Bakeries in the second half of the year.
AB Foods said on Tuesday there was no certainty of a deal with Endless, nor on the terms of such a deal. Founded in 1935, Allied Bakeries has a network of bakeries and distribution depots spanning Britain.
Endless bought Hovis from The Gores Group and joint venture partner Premier Foods in November 2020. The investment firm also owns BBF, maker of cakes, mince pies and other desserts in the UK.
The combined annual sales of Allied Bakeries (estimated at £400m) and Hovis (£478m in the year to September 2023) would be higher than those of Warburtons (£711m in the year to September 2023), The Guardian reported.
Overall, sliced bread producers have struggled in recent years amid higher wheat and energy prices, coupled with changing consumer habits.
Britons’ appetite for bread has waned as people have been cutting back on carbohydrates and gluten, and lunchtime alternatives to sarnies have increased, such as protein pots, salad bowls and sushi.
Sliced bread makers also face competition from artisan bread such as sourdough loaves, and are under intense pressure to keep supermarket prices low.
