- Shareholders to receive shares in both listed entities
- Says both companies can perform better independently
- Shares fall 4%
LONDON, April 21 (Reuters) - Associated British Foods will split Primark from its foods business, saying the fashion chain will be stronger as a standalone company with its own board and dedicated investors.
AB Foods has said the financial markets will better value both the food businesses, which include grocery brands such as Ovaltine, Ryvita and Twinings, and Primark if the retail arm goes it alone.
Over the last three years, Primark, which trades from 486 stores in 19 countries and has annual revenues of about 9.5 billion pounds, has faced intensifying competition from Chinese online giants Shein and Temu, while in January it warned profit would fall, partly due to discounting at the chain.
FIRST-HALF PROFIT FALLS
Illustrating the challenge ahead, AB Foods reported an 18% fall in first-half core profit and said its full-year profit would be below the previous year's outcome due to weak trading at Primark in continental Europe and weaker ingredient markets in the U.S.
Shares in the group opened down 4%.
But AB Foods said it would be better equipped to deal with the tough markets as two companies.
"This is an important step in the evolution of ABF," chief executive George Weston said, adding that the split would maximise the potential of both units.
RBC analysts said that the split should improve the investability of AB Foods in the medium to long term, but warned: "The consumer outlook and outlook for both sides of the business looks quite challenging to us at the moment."
TWO ENTITIES
On completion of the demerger, AB Foods shareholders will hold shares in both listed entities, which are expected to be in the FTSE 100, AB Foods said in a statement.
Shares in the group have fallen 14% over the last year, giving it a market capitalisation of 13.3 billion pounds ($18.0 billion).
Most analysts' sum of the parts valuations of AB Foods show Primark trades at a significant discount to peers, and analysts say Primark has the scale and growth opportunities to thrive as a standalone company.
The group launched a review of its structure last year, conducted in consultation with its largest shareholder Wittington Investments - the holding company for the Weston family.
The group expects to split before the end of 2027, with one-off separation costs of about 75 million pounds.
Reporting by James Davey; editing by Paul Sandle
Source: Reuters