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Kingsmill bread owner Associated British Foods (ABF) is reportedly on the verge of finalising a merger with Hovis, owned by private equity firm Endless.

The proposed transaction, valued at approximately £75 million, aims to combine two of the country’s most recognised bread brands under a single corporate umbrella.

Sources indicate that a definitive agreement could be reached as early as this week, although complexities surrounding the deal may delay confirmation. This potential merger comes after months of negotiations, highlighting ABF’s strategic response to ongoing challenges within the bakery market.

Hovis, founded in 1890, and Kingsmill – part of Allied Bakeries, which is owned by ABF and was established in 1935 – have both faced mounting pressures from inflation, comeptition from speciality bread producers, and shifting consumer preferences towards lower-carb diets. These factors have contributed to a challenging landscape for traditional breadmakers in recent years.

In its latest financial report, Hovis noted a decline in sales, reporting £439.6 million for the 52 weeks ending September 28, down from £477.6 million the previous year. The company also experienced a drop in EBITDA) falling from £20.9 million to £18.7 million, attributed to increased distribution costs and revenue declines. Despite these challenges, Hovis maintained a stable overall market share, underscoring its resilience as a brand.

The merger could yield significant synergies, with industry estimates suggesting potential annual cost savings of up to £50 million. However, the deal will likely attract scrutiny from the UK’s Competition and Markets Authority (CMA), given the combined entity would command a substantial share of the packaged bread market. Currently, Warburtons leads this segment with a 34% market share, followed by Hovis at 24% and Kingsmill at 17%.

ABF, which has been exploring various strategic options for Allied Bakeries amid a challenging market environment, has indicated that it remains committed to enhancing long-term shareholder value. The company has also considered alternative pathways for Allied should the merger discussions falter.

The UK bakery market, valued at approximately £5 billion annually, continues to adapt to changing consumer preferences, including a growing interest in artisanal and specialty bread products.

Image credit: © Hovis