The owner of Kingsmill’s £75m deal to buy Hovis to create the UK’s biggest bread brand has been cleared by the competition watchdog.

The Competition and Markets Authority (CMA) ruled that Associated British Foods’ proposed takeover of Hovis did not raise competition concerns because if the deal did not go ahead “the most likely outcome” would be ABF’s bakeries arm leaving the UK market entirely.

This would affect especially people on lower incomes, for whom bread is a basic staple, the regulator said.

ABF, whose UK bakery arm Allied Bakeries (AB) owns the Kingsmill, Allinson’s and Sunblest brands, supplies bread and other baked products such as muffins and hot-cross buns across the country, and along with Hovis supplies own-brand baked goods to large supermarkets.

Bread suppliers in the UK are struggling with declining demand and significant increases in costs, the CMA said.

AB has run up losses over the last 14 years, despite efforts to improve performance through restructuring, because of the waning popularity of sliced bread, the increase in demand for lower-margin private-label products and higher costs, such as energy, wheat and distribution.

The competition regulator launched an in-depth investigation into the proposed deal after it was announced last August. ABF, which recently said that it would spin off the Primark budget clothing chain next year, said the tie-up would combine the production and distribution activities of the two businesses.

Cyrus Mehta, the chair of the independent inquiry group leading the investigation, said: “Bread is a basic staple for millions of people, which is why it is important we looked carefully at this deal and assessed the competition implications for households across the UK.

“On the basis of the wide range of evidence we received, which showed the difficult position many UK-based bakeries are in, we found Allied Bakeries – owned by ABF – would likely leave the market entirely if the deal did not proceed. Taking that into account, we have concluded the deal does not raise competition concerns.”

Hovis, which was acquired by the UK private equity group Endless in 2020, also owns the Mother’s Pride and Ormo brands. Its pre-tax losses rose to £4.7m in the year to 28 September 2024 from £3.6m the year before.

In Britain, AB’s Kingsmill brand is considered to be weak compared with other brands such as Warburtons and Hovis, and this has contributed to a significant decline in branded sales volumes, the CMA said. As one of only three British suppliers with a nationwide network that delivers bread and other bakery products to shops six days a week, AB has high fixed costs from distribution.

The watchdog said restructuring options were “unlikely to be sufficient to turn the business around”.