Allied sells cakes unit to Tomkins for £35m

Allied Domecq, the drinks and retailing group that has been selling off its food interests, continued its disposal programme yesterday when it sold the Lyons Cakes subsidiary to Tomkins, the industrial conglomerate, for £35m.

The deal could result in large job losses as Tomkins merges Lyons with Mr Kipling cakes, part of its Ranks Hovis McDougall business. Lyons employs 1,700 people in three locations in Yorkshire and Dublin. Mr Kipling has a staff of 3,500. However, Tomkins refused to comment on potential job cuts. "We never comment on the employment position before we actually take control of a business," a spokesman said.

Allied's chief executive, Tony Hales, was pleased with the deal, which will need clearance from the Office of Fair Trading because of Mr Kipling's large market share: "The sale of Lyons cakes is another step in our progressive reshaping of Allied Domecq. The team which has turned round the business in a very difficult sector deserves great credit and we are pleased that it is being sold to a company committed to the UK cakes business."

Allied Domecq, which changed its name from Allied Lyons last year, has now sold half a dozen foods businesses for upwards of £350m since it announced its intention to concentrate on its spirits and retail divisions last July. Its foods division now consists only of Tetley tea and Panrico, a Spanish baking operator.Both are up for sale, though talks with Nestl on the sale of Tetley are believed to have broken down last year because the two could not agree on price. Analysts expect Tetley to fetch between £250m-£350m.

Offloading Panrico could prove more problematic because of the company's complicated ownership structure. "That could take a year to sort out," one analyst said.

For Tomkins, whose interests range from Mothers Pride bread to Smith & Wesson guns and snowblowing machines, the acquisition is the first since chairman Greg Hutchings said he was looking for small, bolt-on deals at the company's half year results announcement last month.

Analysts felt the price - £6m more than Lyons' net asset value - was fair and could be worth £1.5m in additional pre-tax profits. The deal also means potential cost-savings in manufacturing, distribution, ingredients buying and advertising. Lyons's bakery at Carlton in Yorkshire, is thought to be among the most efficient in Europe, so any rationalisation is more likely to occur at the Mr Kipling bakeries.

Tomkins shares slipped 2p to 230p yesterday, while shares in Allied Domecq fell the same amount to 504p.