P&H strikes it lucky as tobacco giants back new lending deal

(c) Sky News 2017: <a href="http://news.sky.com/story/ph-strikes-it-lucky-as-tobacco-giants-back-new-lending-deal-10825104">P&H strikes it lucky as tobacco giants back new lending deal</a>
 

Thousands of workers at Palmer and Harvey (P&H), the grocery wholesaler, will breathe a sigh of relief on Wednesday when it unveils a lending deal backed by two of the world's biggest tobacco companies.

Sky News has learnt that P&H has signed an agreement to secure new debt facilities with a group of banks, alongside Imperial Brands (LSE: IMB.L - news) and Japan Tobacco International.

The deal, worth an undisclosed sum, is due to be announced within hours.

Insiders said it would secure P&H's finances for a number of years, at a time of significant change in Britain's grocery wholesaling sector.

P&H is ‎a crucial part of Tesco (Frankfurt: 852647 - news) 's supply chain, distributing tobacco to every store owned by the UK's biggest retailer.

Tesco accounts for roughly 40% of its revenues.

At the weekend, the companies‎ confirmed a new three-year partnership which paved the way for the wider refinancing deal.

Imperial and JTI ultimately decided not to swap their financial exposure for shares in P&H, an option that had been explored in recent weeks.

Instead, they will stand behind some of P&H's borrowings through guarantees, the details of which are not expected to be made public.

Between them, Imperial and JTI own cigarette brands such as L&B and Silk Cut.

As well as being one of the UK's biggest private companies by sales, it is also among the biggest to be owned by its current and former workforce.

Lenders to it, which include Barclays (LSE: BARC.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) , had become increasingly anxious about the potential ramifications of Tesco's proposed £3.7bn acquisition of Booker.

The extent of P&H's revenues dependent upon the UK's biggest retailer has stoked fears that a huge chunk of its business could shift to Booker if the takeover is completed.

However, a crisis at P&H would also damage Tesco's argument that the Booker takeover would not infringe competition in Britain's grocery supply industry.

Booker owns the Budgens and London fascias, although Tesco has argued that they are operated using a franchise model, and should not be used to justify rivals' arguments that the deal is anti-competitive.

The Competition and Markets Authority is widely expected to refer the deal to a so-called Phase-II inquiry, which would elevate it to the most rigorous level of anti-trust scrutiny.

P&H was established in 1925 as a tobacco and sweets wholesaler, and is the biggest distributor to the UK's convenience sector.

It serves about 90,000 outlets across the country, using a fleet of 1,300 vehicles.

The company is run by Tony Reed, a former boss of Tesco's convenience retailing business, who joined just a few months ago.

P&H declined to comment on Tuesday.

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