Sainsbury’s eyes takeover bid for one of Tesco’s biggest suppliers

SAINSBURY’S is drawing up plans for a takeover bid for Palmer & Harvey, the UK’S biggest tobacco distributor and a major supplier for Tesco.

Plans for the bid, which are understood to be at an early stage, follow news that the wholesale firm was to be put up for sale weeks after securing a deal to shore up its finances.

Professional services firm Pricewaterhousecoopers is supervising the sales process for the firm, which counts itself as one of the UK’S biggest private companies.

A source confirmed that discussions between Sainsbury’s and P&H were taking place, although no formal approach has been made.

The move by Sainsbury’s follows months of concern about P&H’S future ahead of Tesco’s planned £3.7bn of rival wholesaler Booker.

Overall, around 40pc of P&H’S revenues come through business with Tesco. This means that if Booker takes over its contracts with the supermarket it could see a serious dent in its top line.

Just last month, P&H signed a new three-year contract with Tesco to distribute tobacco and postage stamps across its UK store portfolio. It has also reportedly secured millions of pounds through two of its largest creditors, Imperial Brands and Japan Tobacco International, in order to secure its immediate future.

P&H’S long-term financial viability is thought to have prompted the sale.

If Sainsbury’s pushes ahead with a bid for P&H, it could position itself as a competitor to the Tesco/booker tie-up just months after it agreed a stunning £1.4bn takeover of high street store Argos.

P&H was established in 1925 as a tobacco and sweets wholesaler, and is the biggest distributor to the UK’S corner shops and convenience stores.

The company is run by Tony Reed, a former boss of Tesco’s convenience retailing business, and has an annual turnover of more than £4bn.

PWC, Sainsbury’s and P&H declined to comment.