ABF buys bakery business for £730m

Associated British Foods (ABF) is hunting for acquisitions to expand its hot beverage brands, such as Twinings Tea and Ovaltine, after splashing out $1.35bn (£730m) yesterday on the yeast, bakery and ingredients business of the Australian food group Burns, Philp.

Associated British Foods (ABF) is hunting for acquisitions to expand its hot beverage brands, such as Twinings Tea and Ovaltine, after splashing out $1.35bn (£730m) yesterday on the yeast, bakery and ingredients business of the Australian food group Burns, Philp.

Peter Jackson, ABF's chief executive, said the Burns, Philp deal left plenty of cash in reserve to make further acquisitions to pursue his strategy of internationalising ABF's operations and diversifying away from the company's previously dominant sugar business. It will have about £600m in cash after the deal.

"Our hot beverages are made all round the world and that would be an example of another area where we would be looking to make acquisitions," Mr Jackson said.

The transaction involves yeast and bakery ingredients businesses around the globe, including South America, which will be a new geographic area for ABF's operations, plus a US herbs and spices business.

ABF, which is 54 per cent owned by the Weston family, who own Selfridges, said the Burns, Philp operations had profits of $129m and sales of $708m in the 12 months to the end of June. It is the biggest deal that ABF has pulled off since it bought British Sugar in the early 1990s for £770m and is the largest transaction under Mr Jackson's five-year tenure as ABF chief executive.

"These businesses are a perfect fit for ABF. They have a significant presence in growing markets, strong market positions and are cash generative," Mr Jackson said.

Underpinning yesterday's announcement is a gradual move away from a reliance on sugar by ABF. When Mr Jackson became chief executive of ABF in 1999, its British Sugar operations accounted for 50 per cent of group profits. Before yesterday's acquisition, sugar profits were down to 35 per cent of group earnings while after the deal they will fall to 30 per cent.