Primark Split Marks Finish of AB Foods Odd Marriage

Associated British Foods (ABF) is moving forward with plans to separate its Primark fashion chain from its food businesses through a demerger, a strategic shift long signalled by the company and now set for completion by the end of 2027. The decision ends one of the market’s most unusual corporate combinations, creating two standalone FTSE 100 companies: one focused on fashion and the other on a diverse food portfolio spanning tea, bread, sugar and ingredients.

The move comes after ABF reported an 18% fall in first-half core profit and weaker trading at Primark, which faces intense competition from online rivals such as Shein, and Temu. Despite these challenges, ABF CEO George Weston stated the demerger was not a response to trading issues but rather a structural change intended to unlock shareholder value by allowing each business to be valued on its own merits.

Under the plan, Primark—which trades as Penneys in Ireland and operates 486 stores across 19 markets—will become an independent fashion retailer with its own board and investors. The food business, which includes brands such as Twinings, Kingsmill, Patak’s, Ovaltine, and Ryvita, along with major sugar, ingredients, and agriculture divisions, will operate separately across 52 countries.

ABF said financial markets will better understand and value both businesses once separated. Analysts have long argued that Primark was undervalued as part of a conglomerate, with some suggesting a standalone valuation could command a multiple closer to H&M (trading at around eight times EBITDA) or even Next (around 11 times EBITDA). The demerger is expected to create two new FTSE 100 companies, with Primark potentially valued at up to £9 billion and the food business at around £4 billion, depending on future profit outlook.

The announcement followed a period of declining market confidence in ABF, during which the company’s market value fell from £16 billion to below £13 billion. Shares in ABF were down 4% on the day of the announcement, extending a year-long decline of 17%. The company also warned that full-year profit would be below the previous year’s level, citing concerns over consumer spending due to the Middle East conflict, weak US cooking oils and bakery ingredients markets, and a cautious outlook for sugar.

While some analysts view the split as a logical step toward reducing conglomerate discount, others remain sceptical. Quilter Cheviot’s Chris Beckett described the move as “more about structure than strategy,” and retail analyst Richard Hyman said he still did “not really understand the rationale.” Nonetheless, ABF said shareholders—including Wittington Investments, the holding company for the Weston family which owns just under 60% of the group’s equity—supported the separation, with Weston noting they “suppose we’re doing the right thing.”

The demerger does not involve a sale of Primark, and ABF emphasized that the strategic review did not consider divesting the fashion chain. Instead, the company believes Primark now has the scale and growth opportunities to succeed as a standalone entity, even as it contends with difficult trading conditions in continental Europe and pressure from fast-fashion e-commerce competitors.

As the process unfolds over the next two years, investors and analysts will watch closely to see whether the separation delivers the expected valuation uplift and allows both businesses to pursue clearer, more focused strategies.

Key Takeaways

• Associated British Foods is separating Primark from its food businesses via a demerger expected to complete by end-2027.
• The split will create two independent FTSE 100 companies: one fashion-focused (Primark) and one food-focused (Twinings, Kingsmill, sugar, ingredients, etc.).
• ABF cited structural reasons, not trading performance, as the driver for the change, aiming to end the conglomerate discount.
• Primark operates 486 stores in 19 markets and faces strong competition from Shein and Temu, with recent sales declines in Europe.
• The food business spans 52 countries and includes major brands in tea, bakery, and ingredients, alongside sugar and agriculture divisions.
• Analysts suggest a standalone Primark could be valued at up to £9 billion, with the food business worth around £4 billion.
• Shareholder approval, including from Wittington Investments (Weston family holdings), has been secured.
• The demerger does not involve a sale of Primark and is intended to allow each business to be valued independently.

Frequently Asked Questions

Why is AB Foods splitting Primark from its food business?

ABF states the demerger is driven by structural considerations, not trading performance. The company believes separating the fashion and food operations will allow financial markets to better understand and value each business, potentially ending the conglomerate discount that has affected its share price.

When will the demerger be completed?

ABF expects the demerger to be completed by the end of 2027, following a two-year separation process.

Will Primark be sold as part of the split?

No. ABF has confirmed that the demerger does not involve a sale of Primark. The fashion chain will be spun off as a separate, publicly traded company.

What brands are included in ABF’s food business?

The food business includes Twinings (tea), Kingsmill (bread), Patak’s (Indian food products), Ovaltine (malted drink), Ryvita (crispbread), along with major sugar, ingredients, and agriculture operations.

How many stores does Primark operate?

Primark trades from 486 stores across 19 markets, including under the Penneys brand in Ireland.

What challenges is Primark currently facing?

Primark is facing intense competition from online fast-fashion retailers such as Shein and Temu, weaker trading in continental Europe, and cautious consumer spending linked to broader economic uncertainties.

Who owns Associated British Foods?

Wittington Investments, the holding company for the Weston family, owns just under 60% of ABF’s equity and supported the demerger plan.