Britain’s biggest tobacco distributor is on the brink of securing the future of its 4,000 workers after two giant cigarette-makers agreed to pump in millions of pounds of emergency funding.
Sky News has learnt that Imperial Brands and Japan Tobacco International (JTI) have pledged to provide financial support to Palmer & Harvey (P&H) in order to enable it to conclude a takeover by Carlyle, the buyout firm.
The bridge funding provided by the two tobacco giants, which own brands including L&B and Silk Cut, will last for several weeks, allowing Carlyle to undertake due diligence on P&H while it remains solvent, insiders said.
The funds have been offered in addition to roughly £60m in earlier loans made by Imperial and JTI to P&H, the sources added.
Details of the latest agreement were hammered out in the early hours of Thursday morning.
In a statement to the London Stock Exchange confirming a series of reports by Sky News, Imperial said: “Further to overnight media speculation, we confirm that we have been working, together with other stakeholders, to seek to create a sustainable future for the UK wholesaler, Palmer & Harvey, with whom we have a close trading relationship.”
It declined to comment on further details of its support for P&H.
Carlyle hopes to seal a formal period of exclusivity within which to negotiate a takeover of P&H – one of the UK’s biggest private companies – later on Thursday.
The main lenders to P&H – Barclays, HSBC and Royal Bank of Scotland – are said to have agreed to the latest financing package.
If a final deal can be struck, it will go some way to reassuring thousands of people at Britain’s biggest tobacco supplier, who have been left facing an anxious wait for news of a rescue deal.
Questions will nevertheless remain about the fate of P&H if Carlyle, for whatever reason, does not conclude a takeover of the company.
P&H plays an important role in the supply chain of Britain’s grocery sector, distributing tobacco products to every Tesco store in the country as well as tens of thousands of others.
Lenders to P&H and creditors such as Imperial and JTI could lose huge sums if it did collapse, although many of them are likely to take a haircut on the money they are owed even if a sale to Carlyle takes place.
Talks about the future of P&H have been under way for most of the last year, but have intensified since Tesco announced a shock £3.7bn takeover of the wholesaler Booker in January.
Sky News revealed this week that James Lancaster, a co-founder of the convenience retailer McColl’s, has been lined up by Carlyle to become P&H’s chairman if it does clinch a deal.
A deal would be likely to involve Tesco agreeing to an extension of an existing supply deal to as long as five years.
P&H supplies roughly 90,000 retail outlets across Britain with cigarettes, confectionery and other grocery products.
An earlier refinancing of the delivered wholesaler was only concluded a few months ago, alongside an 18-month extension to its supply agreement with Tesco, which accounts for roughly 40% of P&H’s revenues.
P&H is one of the UK’s biggest private companies by sales, and among the largest to be owned by current and former employees.
The existing shareholders are unlikely to receive anything other than a modest payment for their interests in P&H, which was established in 1925 as a tobacco and sweets wholesaler.
The company is run by Tony Reed, a former boss of Tesco’s convenience retailing business, who is thought to be likely to remain in place if the Carlyle deal is finalised.
P&H, Imperial and Carlyle declined to comment.
Source: Sky News