Primark scandal could hasten corporate split

Recent controversy surrounding the fashion retail chain Primark may expedite its separation from parent company Associated British Foods (ABF), according to sources familiar with the matter.

Primark Spin-Off Speculation Intensifies

Talk of a potential spin-off of Primark, often regarded as the prized asset within the ABF group, has resurfaced following the recent departure of its chief executive, Paul Marchant.

Marchant’s resignation followed allegations of improper conduct toward a female individual during a social event late last year. This prompted an internal inquiry by ABF, conducted by lawyers from Herbert Smith Freehills.

Financial Analysts Assess Primark’s Value

Financial analysts estimate Primark could be valued at approximately £10 billion. This is significant compared to the entire ABF group’s valuation of £14 billion.

While Primark‘s earnings have surged, ABF‘s market capitalization has decreased over the past decade.

Past Considerations of Corporate Restructuring

George Weston, ABF‘s chief executive, has previously indicated that the possibility of a Primark spin-off had been explored. However, it was deemed less favorable than having Marchant focus on managing the retail operations rather than engaging with investors.

‘We periodically examine the option of separating the business,’ Weston stated in 2022. He added that there was ‘substantial merit’ in the current group structure, where the Primark head does not hold a board position.

This arrangement allows the Primark leadership team to ‘dedicate their efforts to retail operations, minimizing concerns about investor relations.’

Potential Benefits of a Break-Up

An expert familiar with the company suggested that a separation ‘could unlock value for the overall group.’

‘The market is likely undervaluing Primark‘s true potential,’ an investor commented. ‘A spin-off would undoubtedly be beneficial. These strategic decisions should be under constant review.’

A spin-off would align Primark with competitors such as Next and H&M, both valued around £14 billion.

Interim Leadership and Future Strategy

Finance director Eoin Tonge has been appointed as interim chief executive. This appointment is perceived as highlighting a renewed focus on financial performance in anticipation of a potential public offering.

The Weston family, a prominent business dynasty with roots in Canada dating back to the 1880s, maintains control of 56 percent of ABF through their investment vehicle, Wittington Investments.

In 2021, they divested the Selfridges department store chain but continue to own the prestigious Fortnum & Mason store.

ABF, originally established as a bakery, is a major European food manufacturer, owning brands like Twinings and Silver Spoon.

Marchant, residing in Dublin’s upscale Dalkey area, holds ABF shares valued at £7 million. It remains uncertain whether any of his compensation will be reclaimed.

Potential Successors for Primark CEO Role

Possible candidates to succeed Marchant include former M&S executives Katie Bickerstaffe and Richard Price, as well as Christos Angelides, previously Lord Wolfson’s deputy and Reiss CEO.

Other names mentioned are Primark‘s group strategy director Matt Houston, and Liz Evans, Asda’s chief commercial officer, known for her turnaround of the George clothing line.

‘They need to recruit a long-term leader who can restore the brand’s reputation,’ commented retail analyst Jonathan De Mello.

Primark’s Significance to ABF

Primark contributes to half of ABF‘s £20 billion annual revenue. The retail chain, operating 450 stores across 17 countries, was founded in Ireland in 1969 by Arthur Ryan.

Marchant was only the second chief executive, succeeding Ryan in 2009.

In the 1990s, Ryan spearheaded the move into affordable fashion for younger demographics, offering budget-friendly catwalk-inspired styles, leading to the nickname ‘Primani’. However, the company has faced challenges recently as consumers with lower incomes are heavily affected by increasing living expenses.

ABF shares have decreased by 30 percent in the last year.

Competition has intensified from online retailers like Shein and Temu, which provide lower prices but operate under different tax structures compared to traditional brick-and-mortar stores.

Physical stores remain Primark‘s primary focus, with the recent introduction of click-and-collect services.

An ABF spokesperson stated: ‘The change in chief executive at Primark was not related to the group structure.

‘Primark’s success is attributable to ABF, not independent of it.’