Imperial Tobacco is to prop-up heavily indebted wholesaler P&H in order to allow takeover talks with the Carlyle group to continue beyond the September repayments deadline.

Palmer and Harvey needed to find more than £50m before October in order to service its debts to tobacco giants JTI and Imperial, and its banking partners. However, the new deal announced by Imperial in a trading update will give the wholesaler a time extension on its repayments.

Imperial’s statement reads: “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.”

Sky News reported that P&H and the Carlyle Group have entered exclusive talks, quoting an insider as saying there’s still a while to go before reaching a deal, despite good progress being made.

However, an announcement rumoured to be made by Costcutter on October 4 at its annual expo in Coventry could jeopardise the talks, with Costcutter Group members telling Retail Express that severing ties with P&H is their top priority. Costcutter is in a multi-year contract with P&H but poor stock availability has left retailers frustrated and out of pocket.

A failure for P&H to find a buyer or investor to stabilise the business would result in the wholesaler going under. This in turn could jeopardise Tesco’s planned acquisition of Booker, as competition regulator – the CMA will be watching and listening for any sign of trouble in the food distribution market.