The UK’s competition watchdog has provisionally cleared Associated British Foods’ move to acquire bread rival Hovis, stating the buyer’s own bakery arm would otherwise have to cease operations.
In a interim report into the proposed transaction, the UK Competition and Markets Authority (CMA) said ABF's Allied Bakeries is a "heavily loss-making business in a structurally declining market".
The regulator said Allied Bakeries is "not of wider strategic importance to ABF" and described its Kingsmill brand as “weak” compared to Hovis and market leader Warburtons.
As a result, the CMA said it has determined the deal, announced in August, may not lead to a “substantial lessening of competition” in Great Britain. Without the transaction, Allied Bakeries would likely have to exit the market, the watchdog added.
However, the CMA flagged competition risks in Northern Ireland. It said an alternative buyer would have kept Allied Bakeries competing with Hovis in Northern Ireland.
"We considered the impact of the merger in GB and NI separately, as we found that conditions of competition in these products are substantially different between GB and NI," the CMA said.
ABF's bakery business in Northern Ireland is "operated to a large extent independently of the GB business, having its own manufacturing and distribution facilities and, unlike the business in GB, is profitable", the watchdog explained. It noted the make-up of competition in Northern Ireland "differs" from Great Britain, with Warburtons "having only very recently entered" the region.
The companies must submit a remedy proposal by 9 April to address the concerns. Interested parties have until 16 April to comment on the CMA's findings.
Reacting to the report, an ABF spokesperson said: “The CMA’s interim report is 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. 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.”
