Associated British Foods Plc is moving forward with its plan to spin off its budget fashion chain, Primark, marking a significant breakup of one of the UK's largest conglomerates. This strategic decision, long considered unlikely by investors, aims to transform Primark into a major standalone European clothing company, competing with rivals such as Inditex SA and H&M. The food arm of AB Foods, which includes brands like Ovaltine, Ryvita, and Twinings, will operate independently, spanning groceries to sugar plantations. The demerger is anticipated to be completed by the end of 2027, with shareholders receiving shares in both new listed entities.
The announcement comes amidst a challenging period for Primark's sales. The company recently warned that its profit for the fiscal year would be lower than anticipated due to weaker Primark sales and a mixed performance in its food business. Specifically, Primark experienced a difficult holiday season, with like-for-like sales in continental Europe falling by 5.7% in the 16 weeks to January 3, 2026. While comparable sales in the UK saw a modest increase of 1.7%, overall established store sales worldwide dropped by 2.7%. The company noted a softer April trading period following an encouraging March, attributing this to the emerging impact of the Middle East conflict on consumer spending.
The spin-off is intended to unlock value for shareholders, as analysts believe Primark currently trades at a discount compared to its peers under the AB Foods umbrella. For instance, RBC analysts valued Primark at just over $8.8 billion (£7 billion) as a standalone entity, in contrast to rival Next's market capitalization of approximately $20.2 billion (£16 billion). The demerger will incur an estimated $95 million (£75 million) in one-off transaction costs and result in dis-synergies of under $57 million (£45 million). Despite these costs and recent sales challenges, AB Foods leadership, including CEO George Weston, believes both Primark and the food businesses will thrive as independent entities.
