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(Sharecast News) - The Competition and Markets Authority has cleared Associated British Foods' 75m acquisition of Hovis.
The competition watchdog said on Tuesday that it found that if the merger did not go ahead, the most likely outcome would be that AB Foods would exit the market entirely in Great Britain and Northern Ireland. "This means the competitive pressure from AB would be lost, with or without the merger, and therefore the inquiry group has found that the merger does not raise competition concerns," it said.
ABF owns the Kingsmill brand, supplies bread and other bakery products across the UK. ABF's UK bakery business, Allied Bakeries (AB), and Hovis are also significant suppliers of ownbrand bakery products to major supermarkets, the CMA noted.
Cyrus Mehta, chair of the independent inquiry group leading the investigation, said: "Bread is a basic staple for millions of people, which is why it is important we looked carefully at this deal and assessed the competition implications for households across the UK.
"On the basis of the wide range of evidence we received, which showed the difficult position many UK-based bakeries are in, we found Allied Bakeries - owned by ABF - would likely leave the market entirely if the deal did not proceed. Taking that into account, we have concluded the deal does not raise competition concerns."
Primark owner AB Foods announced last August that it had agreed to buy Hovis from private equity firm Endless.
Broker Shore Capital, which has a 'hold' rating on AB Foods, said Hovis "has the basis to make a very positive contribution to Grocery division earnings in due course". As such, it "warmly welcomed" the announcement from the CMA.
"The CMA's judgement now facilitates the pathway for a new business combination where, post amalgamation, there should be a structurally more efficient firm with a slimmed down central overhead, manufacturing platform, and, perhaps critically, distribution network," Shore Capital said. "It should be stated that this amalgamation is a very considerable body of work.
"With its September year-end, we would expect ABF to have a full year of combined benefits in what is currently its Grocery Division in FY28; the swing in due course may be anything up to 50m per annum, not an inconsiderable sum it should be said, so removing a notable drag on recent divisional trading profitability. As such, we warmly welcome this decision, and whilst it does not really impact FY26, the progressive benefits should be a tailwind."