Tobacco giant Imperial Brands confirmed this morning that it is in talks to help save Palmer & Harvey, the UK's biggest cigarette supplier.
In a trading update, Imperial said it was seeking to create a "sustainable future" for P&H, which supplies Tesco and other major retailers.
Shares in Imperial dropped 2.3 per cent this morning following the announcement.
The rescue deal for Palmer & Harvey is also expected to involve James Lancaster, co-founder of convenience chain McColl's, according to Sky News.
The future of P&H has been in doubt for some months, due to concerns over the private company's debts.
It is also set to face a threat to its contract with Tesco, with accounts for a large proportion of its business, if the supermarket's merger with rival Booker goes through.
The proposed deal between Tesco and Booker was referred for an in-depth competition probe in July, due to concerns that Booker would be able to supply inferior wholesale products to other stores in a bid to drive customers to Tesco.
Tobacco duty impacting cigarette trade
The latest news regarding the rescue deal for the UK's biggest cigarette supplier is in the midst of a rescue deal comes on the same day that the tobacco industry advocacy body releases findings around the illicit cigarette trade.
The TMA found that 72.5 per cent of UK smokers buy tobacco from tax-free sources, including ordering it from abroad and buying it illegally.
The body estimates that this means the government loses out on £3bn a year in tax revenue from tobacco.
“There is a real risk that the problem could be made worse if the Government decides to increase tobacco duty for a second time in nine months in the upcoming Budget," said TMA director general Giles Roca. "These findings suggest the Government needs to completely re-think its tobacco taxation policy.”