The Competition and Markets Authority believes a combined Tesco and Booker have both the motivation and the potential to put P&H out of business.

The announcement came as the CMA released a censored version of its Phase 1 decision report into the Tesco-Booker deal. In the report the regulator said various ‘third parties’ shared concerns about the merger causing the end of P&H and the potential loss of competition in delivered wholesaler this would cause.

The regulator’s report states: “Third parties in particular noted the significance of Tesco’s purchases to P&H’s business model and the importance of P&H as a competitor in the supply of delivered wholesale services.” The CMA supported this view saying that the merger could “‘substantially lessen” P&H’s ability to compete.

Tesco sources nearly all of its goods directly from suppliers with the exception of tobacco, which is purchased exclusively from P&H. The CMA said this accounts for: “a large proportion of Palmer and Harvey’s total revenues.” The CMA believes that the supermarket may switch over to Booker after the deal.

Tesco is likely to have foreseen this argument and signed a new three year deal with P&H at the end of March. At the time the wholesaler sat in a precarious financial position, having to be propped up a couple days later by a financial guarantee from JTI and Imperial Tobacco.

Tesco and Booker’s decision to Fast Track to a Phase 2 investigation by the CMA prevented the regulator from reaching a conclusion on the impact on P&H in time for inclusion in the Phase 1 decision report.

Retail Express approached P&H for comment and is awaiting their response.

The Phase 1 decision report also revealed that Tesco and Booker expect their symbol partners to absorb half of any increase in product costs rather than passing it on to their customers.