Tesco strikes deal to boost finances of rival to merger partner Booker

(c) Sky News 2017: <a href="http://news.sky.com/story/tesco-strikes-deal-to-boost-finances-of-rival-to-merger-partner-booker-10819663">Tesco strikes deal to boost finances of rival to merger partner Booker</a>
 

Tesco (Frankfurt: 852647 - news) has struck a three-year deal with Palmer and Harvey (P&H) that will bolster the privately owned grocery wholesaler’s efforts to stabilise its financial position.

Sky News has learnt that P&H, which has been locked in refinancing talks with its lenders and other creditors for weeks, will announce on Saturday (Shenzhen: 002291.SZ - news) that it has signed a new agreement to work with Britain's biggest retailer.

The new contract, which extends a 23-year relationship between the two companies, comes as Tesco pursues a £3.7bn takeover of Booker Group (LSE: BOK.L - news) , which competes with P&H.

Under the extended deal, P&H will distribute tobacco products and stamps to every Tesco outlet in the UK, as well as a broader range of products to the retailer's petrol forecourts and 1700 Tesco Express stores.

The development is significant because it will ease concerns among P&H's lenders about the impact of Tesco's proposed deal with Booker.

Around 4,000 people work for P&H.

A wider refinancing deal under which Imperial Brands (LSE: IMB.L - news) and Japan Tobacco International (JTI) - which between them own brands such as L&B and Silk Cut - will provide "substantial" financial support to P&H could be announced as early as next week.

P&H, which is the UK's fifth-biggest private company by revenues, relies on Tesco for roughly 40% of its sales - business which analysts predict could eventually shift to Booker if the takeover is completed.

In a statement to be issued on Saturday, P&H's chief executive, Tony Reed, said: "We are delighted to further extend our multi-year relationship with Tesco and we look forward to working with the Tesco team to maximise efficiency and provide great service over the coming years.

"The combination of resources from the two businesses is proven to deliver a first-class retail offer for Tesco customers".

A funding crisis at P&H would have been unwelcome for Tesco, since it could have undermined its 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.

Andrew Woolfenden, Tesco's UK distribution director, said in the statement to be issued this weekend: "We look forward to building on our long-standing partnership with Palmer and Harvey, and continuing to work and innovate with them to serve our customers better."

Sky News revealed earlier this week that P&H had parachuted in a corporate restructuring veteran to steer it through the talks with lenders and creditors.

Andy Leeser, who has worked on complex turnarounds at companies including LA Fitness, the gyms chain, and UK Coal (Other OTC: UKCLF - news) , was installed this month as P&H's chief restructuring officer.

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.

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