Gallagher buys more time to unravel Heath Lambert debts ahead of purchase

Gallagher’s period of exclusivity with Heath Lambert has been extended by three weeks, as negotiators work through the complex web of debts that are holding up the sale of Heath Lambert.

An extension was thrashed out as market speculation focused on wholesaler Gallagher, which, backed by its American parent, is keen to become a retail giant. It is also rumoured to be swooping on staff from London market broker Lonmar.

The period of exclusivity with Heath, originally set until the end of March, has been extended to 18 April. This gives Gallagher more time to negotiate with shareholders, who are owed £39m in preference shares and £15.5m in unpaid dividends.

The sum was to be paid off at the end of last year, but Heath’s articles of association say they can only be paid off if there are sufficient distributable reserves. According to Companies House, the broker’s distributable reserves were £45m in the red last year.

The only other time the sum must be paid off is in the event of insolvency or a sale. If the sale goes through, Gallagher will have to pay preference shareholders the full amount as a priority, which could affect what is left over for the rest of the shareholders.

Staff at Heath Lambert will be watching closely how much the Appleby Trust – the staff employee benefits fund – receives for its 4.75 million ordinary D shares.

As well as keeping the staff in check, Gallagher faces tricky negotiations with The Royal Bank of Scotland and the Pension Protection Fund (PPF), which could squeeze up to £30m out of the deal.

Together, these institutions own half of the preference shares, in addition to a chunk of B shares, in a company called Precis (2517).

Other preference shareholders include Credit Suisse, Cayman-registered ECO Master Fund and its sister, ECR Master Fund, as well as Edinburgh-based investment firm West Register.

The preference shares were created out of a debt-for-equity swap with Heath Lambert in 2005, as the broker struggled with a £210m pension deficit that threatened to sink the company.

The final piece of the jigsaw for Gallagher will be negotiating with chief executive Adrian Colosso, who is thought to want to stay on in a management role for three years.

Market sources say that if Gallagher can’t complete the deal, nobody can. But if the negotiations do not go through, Heath Lambert faces the prospect of having its earnings eaten away by an 8% annual dividend to preference shareholders, in addition to 4% interest on unpaid dividends.

The negotiations have not put Gallagher off acquiring staff. This week, it was said to be moving in on Lonmar casualty boss Tom Payne, as well as a number of other staff from the company.

Lonmar said Payne had resigned from the board, but had not left the company. It also said there had not been any requests by other staff to leave the company. Gallagher declined to comment.

Staff departures would be a blow to Lonmar, which was created from a management buy-out from wholesaler SBJ Global Risks in 2009. It faces £1m in court costs after losing a legal battle with rival Tysers.

In the dispute, which took place last year, Lonmar claimed that Tysers had poached a number of its staff, but the claim was dismissed by the High Court.