The proprietors of Hovis and Kingsmill, two prominent bread manufacturers in Britain, are engaged in discussions regarding a significant merger due to a prolonged decrease in supermarket bread sales.
Sources from Sky News indicate that Associated British Foods (ABF), the London-based firm that owns Kingsmill’s direct parent company, Allied Bakeries, alongside Hovis, which is under the ownership of investment company Endless, have been in extensive negotiations about merging the two entities.
According to City insiders, these discussions are still underway, yet it remains uncertain if a final agreement will be reached.
Bankers are reportedly assisting both parties in negotiating the potential transaction.
Analysts suggest that the deal could take the form of ABF acquiring Hovis; however, details surrounding the merger’s structure or the valuations of the involved companies were still vague as of this weekend.
Additionally, ABF is considering alternative futures for Allied Bakeries that do not involve Hovis.
If the merger proceeds, it would merge two of Britain’s iconic ambient food brands. Allied Bakeries was established in 1935 by Willard Garfield Weston, from the family that continues to oversee ABF.
Hovis has an even longer history, originating in 1890 when Herbert Grime won a £25 prize for coining the name Hovis, derived from the Latin phrase ‘Hominis Vis’, meaning strength of man.
Ongoing inflation, competition from artisanal bread makers, and changing consumer preferences towards lower-carb diets have adversely impacted the bread sector’s financial stability in recent decades.
The conflict in Ukraine has affected wheat and flour prices, contributing to the rising inflation challenges faced by bread producers, as noted in Hovis’s most recent accounts filed at Companies House.
The overall UK bakery market is estimated to be worth around £5 billion annually, with approximately 11 million loaves sold each day.
The key hurdle for merging Allied Bakeries, which also owns the Sunblest and Allinson’s brands, with Hovis lies in its implications for competition within the UK market.
Warburtons, the largest family-owned bakery in Britain, holds a 34% market share in the branded sliced bread sector, while Hovis has 24% and Allied has 17%, according to industry experts.
A merger of Hovis and Kingsmill would increase the market share of the new entity, though one source indicated that Warburtons’ overall revenue would still outstrip the combined group due to its wider product selection.
However, reducing the number of leading supermarket bread suppliers from three to two would challenge the Competition and Markets Authority’s stance on such reshaping mergers, particularly as the watchdog faces intense governmental scrutiny.
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Earlier this year, the government dismissed CMA chairman Marcus Bokkerink in an effort to steer Britain’s economic regulators towards a growth-focused agenda.
An industry insider proposed that a joint venture leveraging the distribution networks of Hovis and Kingsmill could be a potential, albeit less likely, alternative to a complete merger.
They further claimed that such a collaboration could yield up to £50 million in cost savings.
In its interim results released this week, ABF noted that Allied Bakeries has continued to face severe challenges.
“Allied Bakeries remains in a very tough market,” the report stated.
“We are assessing strategic options for Allied Bakeries against this challenging backdrop and plan to provide an update in [the second half of] 2025.”
In a separate presentation to analysts, ABF characterized the losses at Allied as unsustainable.
The company does not disclose specific financial information regarding Allied Bakeries.
Allied also owns Speedibake, a manufacturer of own-label bread.
Hovis has been under the ownership of Endless, a prominent British investment firm, since 2020, having previously belonged to Premier Foods, the makers of Mr Kipling, and the Gores family.
At the time of the last takeover, the High Wycombe-based Hovis employed around 2,700 staff, operating eight bakery facilities along with its own flour mill.
Hovis’s current CEO, Jon Jenkins, previously led Allied Milling and Baking.
As of this weekend, ABF and Endless both opted not to comment.