Logista is 'logical' buyer as P&H is put up for sale

Tobacco suppliers are the most likely to pick up the keys to Palmer & Harvey according to a leading wholesale source.

P&H told The Grocer it could neither confirm nor deny a report on Sky News this week stating the wholesaler was up for sale via professional services firm PricewaterhouseCoopers.

The report, which speculates that the business could change hands within months, said the wholesaler’s creditors Japan Tobacco International and Imperial Tobacco decided to use last month’s refinancing deal to “explore a change of ownership”.

In a statement, P&H said: “We do not comment on market speculation. Palmer & Harvey recently completed a successful refinancing of the business, and we are focused on capturing the opportunities within our market.”

One senior executive at a leading wholesaler questioned the logic of such a deal. “With £400m debt, who would want to buy a loss-making tobacco wholesaler?”

But a second wholesaler said the tobacco suppliers would be keen to shore up supply routes, pointing out that Imperial in particular already operates one of the largest distribution businesses in Europe, Logista.

“Sainsbury’s are watching the situation closely, but it’s hard to envisage them buying a tobacco wholesaler when almost all the profits go upstream. Tobacco suppliers hold almost all the cards in the supply chain.

“But if a buyer isn’t found for P&H there’s too much at stake for the tobacco suppliers unless they have an alternative route to market. And they already do their own distribution in Europe through Logista so the logical move is for P&H to merge into that.”

Logista delivers both tobacco and non-tobacco products to 300,000 outlets including grocers, pharmacies and newsstands across Spain, France, Italy, Portugal and Poland.

It also supplies tobacco for rivals JTI, Philip Morris and BAT via a gentleman’s agreement and has a supply agreement with Repsol to deliver food and drink to its petrol stations in Spain.

Imperial, which reported a 12.1% increase in ebit to £2.23bn in its full-year results this week, told The Grocer that although it was aware of the news report, it does not comment on rumour and speculation.

Conversely, sales at P&H fell 0.7% to £4.44bn, while pre-tax losses doubled from £8.5m to £17.3m, which the wholesaler put down to investment in a new depot and distribution centre in its annual report in September. EBITDA also fell 40% from £35m to £21m.

P&H’s latest rerefinancing deal in April saw the troubled wholesaler extend trade credit facilities with its existing lenders, including Imperial and JTI.

In a statement, P&H said the deal did “not change our commercial relationship with Imperial Tobacco or JTI and we look forward to continuing to work with all our suppliers and retail customers to deliver high levels of service, making the most of our scale and knowhow.”

Shortly before the refinancing, the wholesaler also agreed a three-year extension to its key tobacco contract with Tesco, which is understood to represent 40% of its sales, despite speculation Tesco would move the contract if its proposed £3.7bn merger with P&H rival Booker goes ahead.