The UK Competition and Markets Authority (CMA) has outlined the key competition issues it will examine in its phase 2 investigation into Associated British Foods plc’s (ABF) proposed acquisition of Hovis Group Limited, with a particular focus on potential harm to competition in UK bread and bakery markets.
Because the transaction was fast-tracked to phase 2, the CMA did not publish a detailed phase 1 decision setting out its theories of harm. Instead, the authority has now clarified the main areas of concern that will guide its in-depth assessment of whether the merger could result in a substantial lessening of competition in the United Kingdom.
Core focus: horizontal unilateral effects
The CMA’s investigation will primarily concentrate on the risk of horizontal unilateral effects arising from the merger. This theory of harm reflects concerns that the combination of two close competitors could remove an important competitive constraint, enabling the merged entity to increase prices or weaken non-price aspects of competition, such as quality, range, service or innovation, without needing to coordinate with rivals.
The authority will assess whether, following the merger, there would be sufficient alternative suppliers to constrain the merged entity effectively across the relevant markets.
Markets under scrutiny
The CMA is examining overlaps between ABF’s Allied Bakeries business and Hovis in the supply of “plant bread” (large-scale, pre-sliced packaged bread) and a range of other bakery products.
In plant bread, the CMA will consider whether competition should be assessed within a single overall market or whether segmentation is appropriate, including by type of bread (such as white, brown or sourdough) and between branded and private label products.
In addition, the CMA is assessing potential competition concerns in markets for other bakery products where the parties overlap, including muffins, fruit bread and hot cross buns in Great Britain, as well as potato farls, soda farls and pancakes in Northern Ireland. The authority has indicated that these product categories may be examined either as distinct markets or as part of broader groupings, depending on evidence of demand- and supply-side substitution.
Geographically, the CMA will consider whether competition conditions differ between Great Britain and Northern Ireland, and whether Northern Ireland forms part of a wider all-island market.
Counterfactual and market exit considerations
A central element of the investigation will be the counterfactual assessment—namely, how competition would evolve absent the merger. Given that both Allied Bakeries and Hovis have been loss-making in recent years, the CMA will examine whether either business might exit the market, restructure, or materially scale back its operations if the transaction does not proceed.
This analysis will draw on the parties’ internal documents, financial evidence and submissions, as well as information from third parties. The outcome of the counterfactual assessment will be critical in determining whether the merger would worsen competitive conditions compared with the most likely alternative scenario.
Wider competitive and consumer impacts
Beyond market shares and competitive closeness, the CMA will consider broader structural features of the industry, including production capacity, distribution networks, and the role of large grocery retailers in shaping competition among suppliers.
The authority has also highlighted the potential implications of the merger for consumers, particularly given that bread and bakery products are staple goods. The investigation will therefore examine whether the transaction could adversely affect prices, choice or security of supply, with specific attention to impacts on vulnerable consumers on low incomes.
Next steps
The CMA’s assessment of theories of harm may evolve as further evidence is gathered during the phase 2 inquiry. The authority has invited interested parties to submit evidence on additional issues they consider relevant, including entry, expansion, buyer power and efficiencies that could offset potential competition concerns.
The investigation will ultimately determine whether the merger can proceed without conditions, requires remedies to address competition risks, or should be prohibited under UK merger control rules.