AB Foods-Hovis merger is threat only to Northern Ireland market - CMA
The UK Competition & Markets Authority on Thursday said it has provisionally found that Associated British Foods PLC’s acquisition of Hovis Group Ltd threatens competitive conditions in Northern Ireland, but not in the rest of the UK.
The London-based food, ingredients and retail group Aannounced plans to buy bread maker Hovis back in August, through its subsidiary ABF Grain Products Ltd.
High Wycombe, Buckinghamshire-based Hovis is currently owned by Leeds-based private equity firm Endless LLP.
AB Foods announced the acquisition plan in August following a strategic review of its UK bakery business, Allied Bakeries, noting: ‘Profitability at Allied Bakeries has been increasingly challenged in recent years by a decline in demand for pre-sliced, packaged bread and a loss of scale in Allied Bakeries‘ nationwide distribution network.’
Financial terms of the deal were not disclosed, though AB Foods Chief Executive George Weston said at the time: ‘This transaction will create a UK bakeries business that is both profitable and sustainable over the long term.’
The UK’s competition watchdog began an investigation into the proposed deal in December. The CMA in January referred the case for ‘in-depth investigation under its fast-track procedure’ at the request of AB Foods and Hovis.
On Thursday, the regulator published an interim report of the case, saying: ‘The CMA has provisionally found competition concerns in the supply of bread and certain other bakery products in Northern Ireland, but not in Great Britain.’
This is because the CMA sees it as likely that, without the merger proceeding, Allied Bakeries ‘would exit the supply of bread and other bakery products, and there would not have been an alternative purchaser for the entire AB business, or AB’s GB bakery assets, that would continue to use them to supply these products in competition with Hovis.’
‘Accordingly, regardless of whether the merger goes ahead or not, the constraint from AB as a separate competitor in GB would be lost,’ the watchdog said.
‘This is not our final decision,’ the CMA added, inviting responses to the interim report by April 16. It plans to publish the full report in due course.
AB Foods responded on Thursday acknowledged the report as ‘welcome recognition that, against a challenging financial backdrop for the wrapped and sliced bread sector, this transaction will help to deliver a far more effective competitor that will be able to invest in innovation and growth, to the benefit of consumers and the wider UK economy.’
It added: ‘We have been clear with the CMA that the transaction is the only route to creating a sustainably profitable business. The CMA has recognised that, if the transaction is not allowed to proceed, Allied Bakeries will be unable to continue operating under current market conditions. We will continue to engage constructively with the CMA, including with regard to our Northern Ireland business, so that we can achieve regulatory clearance as efficiently as possible.’
ABF shares fell 1.1% to 1,816.50 pence on Thursday morning in London, and are down 4.8% over the past year.
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