The UK's competition watchdog has escalated its scrutiny of a major bakery sector deal, launching an in-depth investigation into the planned £75m takeover of Hovis by the owner of Kingsmill.
CMA Ramps Up Scrutiny of Bread Brand Merger
The Competition and Markets Authority (CMA) confirmed on Thursday that it is moving to a 'phase 2' investigation into the acquisition. The regulator's primary concern is whether the deal, which would combine the UK's second- and third-largest bread brands, could lead to a substantial lessening of competition.
This could result in reduced choice and higher prices for consumers on supermarket shelves. The CMA initially raised concerns in December 2023 and now has until at least the end of June to complete this deeper probe, significantly slowing the merger process.
Deal Context and Broader Market Challenges
The takeover was announced in August by Associated British Foods (ABF), the conglomerate that also owns the Primark clothing chain. ABF intends to buy Hovis from its private equity owners, Endless. The deal comes at a time when the popularity of mass-produced, sliced white bread is waning, as shoppers increasingly seek out artisanal loaves and avoid ultra-processed foods.
The CMA will assess whether the combined entity would face enough competitive pressure from other players. This includes supermarkets' own-label products and the clear market leader, Warburtons, which holds more than a quarter of all packaged sliced bread sales in the UK.
Interestingly, Hovis directors indicated in accounts published last summer that they believed any deal was unlikely to be concluded before September 2026, with regulatory reviews likely continuing until at least that date.
ABF Issues Profit Warning Amid 'Challenging' Climate
The news of the escalated CMA probe coincided with a profit warning from ABF. The group stated that it expects its adjusted operating profit for the full year to be below the previous year's level. This announcement sent ABF's shares tumbling by as much as 11% in Thursday morning trading.
In a trading update, ABF cited weak consumer confidence in the UK and Europe, which particularly dampened sales at its Primark division over the past four months. While Primark gained market share, sales growth is now expected to be in the low single digits for the first half of the year.
George Weston, ABF's chief executive, commented: "In a challenging consumer environment, our focus is on factors within our control... While we expect the tough trading conditions to continue in the short term, we remain confident in the overall prospects for the group."
The outcome of the CMA's investigation will be pivotal for the future structure of the UK's baked goods aisle, determining whether two of its most familiar brands can unite under single ownership.
