Primark to split from AB Foods business - what it means for investors

The group, which runs large food, sugar and agriculture operations, said it expects to separate Primark by the end of 2027.

The move comes after a significant review into the company structure in a bid to improve returns for shareholders. Both companies are set to be quoted on the main FTSE 100 index following the split.

Wittington Investments, the vehicle of Associated British Foods’ founding Weston family, is to keep majority stakes in both businesses.

Primark runs 486 stores across 19 global markets and employs more than 83,000 workers. The high street retail giant reported annual revenues of around £9.5 billion.

ABF’s food business has around 55,000 workers and produces grocery brands including Twinings, Ryvita and Patak’s. The food operation will keep the Associated British Foods name following the separation.

George Weston will be chief executive of the food business while Eoin Tonge will be chief executive of Primark.

Bosses said the break-up will result in around £75 million of one-off separation and transaction costs. It added that it expects to lose out on “below £45m” of synergies following the deal.

Weston, chief executive of ABF, said: “This is an important step in the evolution of ABF. For our food business, the separation will enable greater understanding of the breadth and strength of our differentiated portfolio and its long-term growth opportunities as the only FTSE 100 pure play food producer.

“For Primark, it enables the creation of appropriate governance to maximise the future potential offered by Primark’s powerful brand, strong customer proposition and opportunities in existing and new markets.”

Michael McLintock, chairman of ABF, said: “The board has now completed its in-depth review of the structure of ABF and has concluded that a demerger of Primark is the best way to maximise long-term returns for shareholders, reflecting Primark’s scale today and the need for a better understanding of the food business.

“The opportunities ahead for both Primark and Food are considerable and the board firmly believes that each will thrive as an independent entity,” he added.

Dan Coatsworth, head of markets at AJ Bell, said the retailer might be afforded a higher valuation as a standalone business and was likely to grab a place in London’s top-flight index.

“ABF shareholders will get shares in Primark as part of the process, and both the parent and the retail spin-off are expected to be members of the FTSE 100 index,” he explained.

“For years, ABF said it would never split Primark from the group, arguing that a conglomerate structure provided added benefits. To some extent that is true, as evidenced by ABF regularly having one of its many component parts fall behind and the rest of the group picking up the slack. However, the bigger Primark has got, the stronger the call to let it stand on its own. ABF has finally buckled and pressed the button on the demerger.”

He added: “The type of investor who wants to own shares in a food products and ingredients business is not necessarily the same as one seeking exposure to the retail sector.

“When the corporate split happens, it’s likely we will see a shift in the shareholder register as some existing ABF investors choose sides. Some might prefer to focus on the food operations, while others will pledge their allegiance to retail. That said, there is often inertia by investors, and they may be happy to hold both.

“There is the potential for Primark to trade on a higher valuation as a standalone listed business.”

Adam Vettese, market analyst for eToro, suggested that while the proposed Primark demerger was structurally the right long-term call, it had arrived at the “worst possible moment”.

He noted: “Stripped of Primark’s cash generation, the standalone food business faces immediate market scrutiny with US tariff headwinds battering Twinings and Patak’s, sugar in structural decline, and no clear recovery catalyst on the horizon.

“Meanwhile, the Middle East conflict remains a live threat to energy and input costs, with food inflation potentially spiking in a deterioration scenario. Until management can demonstrate credible margin stabilisation and resolve the Allied Bakeries regulatory overhang, today’s [share] sell-off looks entirely rational. The burden of proof for ABF has just risen considerably.”

Richard Hunter, head of markets at Interactive Investor, part of Aberdeen Group, also pointed to some challenges ahead.

“Quite aside from the challenging backdrop of a cautious consumer, the sector itself is famously competitive, and Primark now lines up against the likes of Chinese players such as Shein and Temu, while its online offering is still far behind that of Next. It is nonetheless continuing to invest heavily in the business, particularly around capacity and new technology.

“Investors will now begin to judge Primark and ‘FoodCo’ as the discrete businesses which they will become, and indeed this could yet result in the release of some pent-up value on both sides.

“In the meantime, however, the group is fighting fires on several fronts and the sharp fall in the share price at the open reflects this uncertainty.

“Investors will now be going back to the drawing board to mull whether the market consensus of the shares even as a hold reflects the challenging position in which the group is currently trapped, let alone the additional distraction of the demerger.”

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