Kingsmill owner Associated British Foods (ABF) and the private equity owner of Hovis, Endless LLP, have been in talks over a potential merger deal.

A merger would combine two of the biggest bread brands in the UK, behind Warburtons, which is the current market leader, and be likely to attract the attention of the Competition and Markets Authority.

According to The Independent, the discussions come as ABF said today (6 May) that it is “committed to increasing long-term shareholder value”.

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It added that it is “evaluating strategic options” for Allied Bakeries – the division of the business responsible for the Kingsmill brand – against a challenging environment.

The bread industry has been hit by headwinds in recent years after the global cost of wheat rocketed.

As energy and distribution costs increased last year and some commodity prices rose five or sixfold following Russia’s invasion of Ukraine, Hovis chief executive Jon Jenkins said at the time that the British bread company had hiked prices by 15% to 30%.

The news comes as ABF’s profits jumped over the full year but a reduction in European sugar pricing is set to “significantly” impact the British Sugar operator next year.

In the year to 14 September, the British food group’s adjusted pre-tax profit surged 33% to £1.9bn, while grocery adjusted operating profit was up 17%. Across its ingredients division, sales grew 2%, while adjusted operating profit rose 12%, led by yeast and bakery ingredients.