Carlyle lights up race for tobacco giant P&H

A buyout firm‎ is edging closer to a rescue deal for the tobacco supplier Palmer & Harvey (P&H) that would preserve thousands of jobs.

Sky News has learnt that Carlyle, the company whose British investments include the RAC (Taiwan OTC: 2237.TWO - news) breakdown service, is close to entering a period of exclusivity during which it would seek to conclude a takeover of P&H.

Sources said this weekend that a final deal was still some way off, but would probably involve Carlyle taking a controlling stake in the business, supported by its existing business partners, lenders and customers.

US-based Carlyle has been bidding for P&H against rivals including Brookfield Business Partners, owner of the road-fuel supplier Greenergy.

Insiders cautioned that talks between Carlyle and P&H could still fall apart.

Sainsbury (Amsterdam: SJ6.AS - news) 's has also explored a bid for P&H, as well as having recently terminated exclusive discussions to buy Nisa Retail, a convenience store wholesaler and retailer.

P&H, which employs about 4,000 people, is the biggest tobacco distributor in Britain, supplying all of Tesco (Frankfurt: 852647 - news) 's stores and thousands of others owned by rival supermarkets such as Sainsbury's.

It has been trying to find new investors as it seeks a long-term agreement with Imperial Brands (LSE: IMB.L - news) and Japan Tobacco International (JTI), two of the world's biggest cigarette manufacturers.

A rescue of P&H is far from inevitable, with talks about a refinancing only having been completed a few months ago.

If the company collapsed, however, it would create huge supply chain headaches for Imperial and JTI, which between them own brands such as L&B and Silk Cut.

Sky News revealed in the spring that the two companies had hired Deloitte and EY, two accountancy firms, to advise them on the future of P&H - which owes them tens of millions of pounds.

The entire convenience sector is in a state of flux following Tesco's agreed £3.7bn takeover of Booker , the wholesale giant, and was already experiencing a seismic shift because of growing competition from with online-only retailers.

Competition regulators are examining the Tesco-Booker deal, and have said they will take into account its likely impact on P&H.

The independently owned delivered wholesaler only recently signed an extension to its supply agreement with Tesco, which accounts for roughly 40% of P&H's revenues.

P&H hired consultancy firm PriceWaterhouseCoopers (PwC) to oversee a sale process amid pressure from Imperial Brands and JTI to secure a long-term solution.

In April, the two tobacco companies agreed to lend substantial multi-million pound sums to P&H to secure its immediate future.

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.

Lenders to it, which include Barclays (LSE: BARC.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) , had become increasingly anxious about the potential ramifications of Tesco's proposed £3.7bn acquisition of Booker.

P&H was established in 1925 as a tobacco and sweets wholesaler, and is the biggest distributor to the UK's convenience sector.

Serving about 90,000 outlets across the country, it uses a fleet of 1,300 vehicles.

The company is run by Tony Reed, a former boss of Tesco's convenience retailing business, who joined last year.

P&H and Carlyle declined to comment on Sunday.