When Tesco shocked everyone in February with its audacious £3.7bn takeover of Booker, there was little doubt this deal would impact the grocery sector – and particularly wholesale – for years to come.
What wasn’t clear was just how soon that impact would be felt. For here we are, still waiting for the Competition & Markets Authority to even start its consultation on the deal, and we have noises that lenders to Booker rival Palmer & Harvey are getting twitchy, prompting major international tobacco manufacturers to consider taking an equity stake in the business as a way of shoring up their key distributor.
Today both Imperial Brands and Japan Tobacco International confirmed they were in discussions with Palmer & Harvey over the wholesalers’ refinancing. They stopped short of confirming a Sky News story that taking a stake was part of the discussions, but it is understood that it is indeed one of several options on the table.
The news follows earlier reports that P&H was looking to refinance, as some of its lenders were becoming concerned by the impact of the Tesco-Booker deal.
The Grocer understands this is broadly the case, although the unique way in which P&H is owned by current and former employees means the wholesaler basically looks to refinance every year. That means it is likely the latest round of fundraising is being influenced by Tesco-Booker rather than triggered by it.
Refinancing talks every year
What is intriguing is the role of the tobacco giants in all this. P&H has been making moves to become less dependent on tobacco for many years now, yet JTI and Imperial are party to its refinancing talks every year. And if the two do indeed now take a stake, that relationship is sure to become even more complex than it already is.
Further implications for the Tesco-Booker deal also remain to be seen. When news of the deal broke, observers were quick to suggest P&H might lose out as a result, particularly if it lost its Tesco contacts, which Sky suggests amount to about 40% of its total revenue.
At the same time, it is far from clear P&H will necessarily lose its Tesco business to Booker, specifically its tobacco distribution deal. Like P&H, Booker has been looking to become less tobacco-focused in recent years, and there is a sense in the market that P&H is probably the better operator of the two when it comes to the costly and labour-intensive distribution of tobacco.
It is also noteworthy that Sainsbury’s, another of P&H’s customers, has reportedly agreed to provide interim financial support to P&H. It shows retailers can ill afford their key tobacco distributor running into trouble, and for the moment that includes Tesco – whatever it is eventually planning to do in the future.