Associated British Foods PLC (LSE:ABF) has cleared the biggest hurdle in its bid to acquire bread maker Hovis, after the competition regulator provisionally found no competition concerns in Great Britain, though it flagged a potential problem in Northern Ireland.
The Competition and Markets Authority (CMA) said its in-depth investigation had found that the deal could substantially reduce competition in the supply of bread and bakery products in Northern Ireland, but not in the much larger Great Britain market.
ABF, the food-to-fashion conglomerate behind brands from Primark to Kingsmill, has been seeking a buyer or partner for its loss-making Allied Bakeries division for several years.
The CMA acknowledged that if the deal were blocked, Allied Bakeries would likely exit the market entirely, given there was "little to no prospect" of further restructuring delivering a viable business.
ABF said the interim report was "welcome recognition" that the deal would create "a far more effective competitor," and said it would engage with the regulator over the Northern Ireland issue, where it is understood to be exploring a sale of its local operations – which include the Ormo brand alongside Kingsmill.
Analysts at Shore Capital said the ruling was encouraging, and flagged a potential swing of more than £50 million in bakery earnings if the deal proceeds as hoped.
The broker, which rates the stock a 'hold', said the deal remained ABF's best hope of stemming "a quite long-standing negative earnings stream" in British plant bread, a market where volumes have been in structural decline for years.
ABF, whose shares pared a 1% early loss on Thursday to sit flat at 1,835p by late afternoon, is due to report half-year results on 21 April.