Primark owner gives frumpy spin on breakup vogue
21/04/2026 12:14
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. By Aimee Donnellan DUBLIN, April 21 (Reuters Breakingviews) - Associated British Foods ABF.L may offer investors a no-frills style break-up. The owner of fast fashion retailer Primark is planning to split the seller of 10 pound dresses from the one that makes Twinings teabags and Ryvita crackers. On paper, the split makes sense given the company’s depressed valuation, and the need for more focus. But the two divisions’ challenges, and a tricky backdrop for food and cheap fast fashion may limit the demerger’s appeal. AB Foods CEO George Weston is following a well-trodden path in the consumer goods space. In recent years, GSK GSK.L has hived off its over counter medicine business Haleon, $126 billion Unilever ULVR.L has spun out its ice cream unit and is now planning to merge its food business with U.S. spice maker McCormick MKC.N. Nestlé NESN.S is looking to offload part of its water business. As those larger companies have found, AB Foods’ fashion and nutrition units operate in very different markets. Separation should allow investors the chance to back simpler, more focused groups. AB Foods’ lowly valuation also boosts the case for a breakup. The group trades at just six times 2026 EBITDA, per Visible Alpha estimates, a steep discount to Zara-owner Inditex ITX.MC which is on over 13 times and H&M HMb.ST on eight times. Assume Primark generates 1.6 billion pounds of EBITDA for 2026, in line with Visible Alpha estimates adjusted for extra costs after the demerger, and that it is worth 7.5 times that figure, a modest discount to the larger H&M. That implies an enterprise value of just over 12 billion pounds. Put the food business on six times its expected EBITDA, below peer Premier Foods, which is expected by analysts polled by Visible Alpha to grow more quickly, and it could be worth around 6.5 billion pounds. Add the two together, subtract one-off costs, and the combined 18.5 billion pounds is around 20% above AB Foods’ current enterprise value. That suggests a breakup is probably a worthwhile exercise. But investors may face a long wait before the businesses can be turned around enough to deserve less dowdy multiples. And in the meantime, they will have to grapple with weakening consumer sentiment and red-hot competition from the likes of Shein and other fast-fashion giants. True, Primark may benefit as squeezed shoppers hunt for bargains, yet the brand’s European business was still described as "weak" in its latest half year results. The food unit is also struggling with faltering U.S. demand, and the sugar division faces the onslaught of weight loss drugs. Weston has yet to prove that creating two smaller businesses will help them cope with these many challenges. Follow Aimee Donnellan on LinkedIn. CONTEXT NEWS Associated British Foods said on April 21 it will split Primark from its foods business. AB Foods 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. Shares in AB Foods were down 3.7% by 0907 GMT on April 21. AB Foods is trailing big retailers and rival foods group https://www.reuters.com/graphics/BRV-BRV/gdpzajrqevw/chart.png (Editing by Neil Unmack; Production by Shrabani Chakraborty and Oliver Taslic) ((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))