Associated British Foods has finally pulled the trigger on one of the most anticipated corporate restructurings in the UK market, confirming plans to separate Primark from its food businesses, yet investors appeared far from convinced that the move will immediately unlock value.
Shares in the FTSE 100 group fell 5.6% after the announcement, extending a difficult year for the stock and highlighting concerns that Primark’s recent performance may be overshadowing the potential benefits of the split.
The demerger will create two separately listed companies, with Primark becoming an independent retailer while the remaining food business retains the Associated British Foods name. Existing shareholders will receive stakes in both companies, while Wittington Investments, the Weston family’s investment vehicle, will maintain majority holdings in each.
ABF aims to complete the separation by the end of 2027, creating what it describes as the only pure-play food producer in the FTSE 100 while giving Primark the freedom to pursue its own growth strategy.
The decision brings an end to years of speculation over whether the discount fashion chain belonged alongside household food brands such as Twinings, Kingsmill, Patak’s, Ryvita and Silver Spoon. Management argues that the two operations have little in common and that investors have struggled to properly value them under one corporate structure.
For Primark, the demerger represents both an opportunity and a test.
The retailer has been one of Britain’s standout retail success stories, growing to 486 stores across 19 countries and generating around £9.5 billion in annual revenue. However, the business has faced a more difficult environment in recent years as consumer spending has come under pressure and competition from online rivals including Shein and Temu has intensified.
The limitations of Primark’s store-focused model were exposed during the pandemic when lockdowns forced shoppers online. While the company later introduced click-and-collect services, it has remained committed to large physical stores and low-price fashion rather than a full-scale e-commerce operation.
Recent trading has done little to calm investor nerves. ABF reported that an encouraging start to the spring and summer season in March was followed by softer demand, with customers increasingly feeling the economic effects of the conflict in the Middle East. The company warned that prolonged geopolitical tensions could weigh further on sales.
First-half figures reflected those challenges, with group revenue down 2% and adjusted operating profit falling 18%.
Supporters of the demerger believe the market may ultimately place a higher valuation on Primark as a standalone retailer. Conglomerates often trade at a discount because investors must assess multiple industries under one roof, whereas focused businesses can attract stronger ratings.
Whether Primark commands a similar premium remains uncertain. The split may remove the conglomerate discount, but it does not remove the competitive pressures facing value fashion retail or the broader risks to consumer spending.
For years, ABF’s mix of retail, sugar, agriculture and ingredients provided a degree of balance when one division encountered headwinds. Once the separation is complete, investors will have a clearer view of both businesses and a clearer verdict on whether Primark’s future is worth more on its own than it was inside the wider group.
