Merger of Hovis and Kingsmill

The owners of Hovis and Kingsmill have concluded a final agreement to bring together two of the most famous food brands in Great Britain after months of discussions. Associated British Foods (ABF), the company listed in London, is set to pay around 75 million GBP to acquire Hovis from its long-term private equity supporters.

Background of the Deal

A deal could be officially agreed to combine the companies at the end of next week, although the complexity of the transaction may still affect the timing. The confirmation of the deal would come almost three months after it was reported that ABF and Endless, Hovis’ owner, had been in discussions since 2020.

Benefits of the Merger

Industry sources have estimated that a combined group could benefit from annual cost savings of up to 50 million GBP. The merger would combine two historical bread producers under joint possession, with Hovis being founded in 1890 and Kingsmill being founded in 1935 by Willard Garfield Weston.

History of the Companies

Hovis draws its history back to 1890 when Herbert Grime registered the name Hovis, which was derived from the Latin phrase "Hominis Vis" meaning "strength of humans". The company has a long history of producing high-quality bread, and its brand has remained resilient despite difficult trade conditions.

Financial Performance

In recent accounts, Hovis reported a turnover of 439.6 million GBP in the 52 weeks to September 28th last year, down from 477.6 million GBP the previous year. The company’s result before interest, taxes, depreciation, and amortization also declined from 20.9 million GBP to 18.7 million GBP, due to the decline in sales and higher distribution costs.

Market Prospects

The entire British bakery market is estimated to have an annual turnover of around 5 billion GBP, with 11 million bread sold per day. A merger of Allied Bakeries, which also owns the Sunblest and Allinson bread brands, and Hovis would give the combined group the largest proportion of the branded sliced bread sector.

Regulatory Approval

The prospects for a merger are subject to the approval of the Competition and Markets Authority (CMA), which is under pressure from the government to scrutinize large mergers. Warburton, the largest bakery group in the UK, currently holds an estimated 34% of the branded sliced bread sector, with Hovis holding 24% and Kingsmill holding 17%. A merger of Hovis and Kingsmill would give the combined group the largest proportion of this market segment.