Following months of speculation, Kingsmill owner Associated British Foods on Friday (Aug 15) announced that it has reached an agreement to acquire Hovis Group Limited from its current owners, Endless LLP for an undisclosed sum.
The completion of the transaction is subject to regulatory approval.
The proposed acquisition marks a significant step towards creating a more sustainable and efficient bakery operation in the UK, delivering great products for customers in a very challenging market.
The purchase price was not disclosed but a person with knowledge of the situation told Reuters it was about 75 million pounds.
As announced by Associated British Foods, the acquisition will combine the production and distribution activities of the two businesses, driving significant costs synergies and efficiencies, to create a profitable UK bread business that is sustainable over the long term.
The acquisition of the 135-year old Hovis brand from private equity firm Endless is expected to bolster the group's Allied Bakeries unit which in addition to Kingsmill owns the Sunblest and Allinson's brands.
The combined business will be better placed to compete effectively and to establish a stable platform for product innovation in the segments of the UK bakery category that are growing as a result of changing consumer tastes and needs.
This will include improvement in existing products and expansion into new product ranges.
George Weston, Chief Executive of Associated British Foods, said, “This transaction will create a UK bakeries business that is both profitable and sustainable over the long term.
"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.”
In recent years, Allied Bakeries and Hovis, which are both loss-making, have been hit by a decline in demand for pre-sliced, packaged bread, reflecting increased competition from speciality bread producers as well as changing consumer tastes with more opting for diets with lower amounts of carbohydrates.
AB Foods said the deal, combining two of the UK's best known bread brands, will bring together production and distribution activities, driving significant cost synergies and efficiencies.
It said the combined business will be better placed to compete effectively and deliver product innovation in the segments of UK bakery that are growing, such as sourdough.
The deal is subject to regulatory approval. It will likely face a lengthy probe by the competition authorities given the combined group's market share. Hovis has about 18 per cent of the pre-sliced, packaged bread market, while Allied Bakeries has about 6 oer cent.
Industry leader Warburtons has about 28 per cent.However, the figures for Hovis and Allied Bakeries exclude bread they manufacture for own-label customers.