Hilco, Woolworths’ suitor, has sweetened the terms of its £1 offer for the company’s retail division, keeping crisis talks over the company’s fate alive.

The distressed-business specialist offered to assume an additional £35 million of the group’s debt at the weekend in an attempt to gain control of the 99-year-old retailer’s 840 high street stores.

Woolworths’ lenders have yet to approve the offer, but further talks between the retailer, its banks and Hilco are scheduled for today.

The new deal would allow Hilco to assume up to £300 million of the group’s debts in return for the retail business. Woolworths has 30,000 employees and job losses are inevitable, whether Hilco buys the stores or the whole group goes into administration, since Hilco almost certainly would shut some shops. Hilco is also likely to put the retail unit through a prepackaged administration to enable it to close its worst-performing stores as quickly as possible.

A deal with Hilco would mean that EUK and 2Entertain, the publishing and distribution businesses, would stay solvent, retaining about £85 million of debt and the group’s entire pension deficit of about £100 million. The two groups together have annual profit before interest and tax of £40 million.

Woolworths’ banking syndicate, which is led by Burdale, a Bank of Ireland subsidiary, and GMAC, appointed Deloitte, the accountancy firm, six weeks ago to represent the lenders’ interests in talks with Hilco and other interested parties. It is understood that Delotte will step in if sale talks fail and the lenders are forced to put the retailer into administration in December, by which time the retailer has to agree a new financing package with its banks. Woolworths, Hilco and Deloitte declined to comment.

The retailer’s problems have snowballed in recent weeks as credit insurers have refused to insure its suppliers and the high street chain has been denied credit. Sources close to the retailer’s lenders say that it is running low on cash and Steve Johnson, its chief executive, has indicated that he would put the company into administration rather than risk letting its directors trade insolvent.

Sources said that Ardeshir Naghshineh, Woolworths’ biggest shareholder, said that he was on his way to London last night for negotiations with the lenders. It emerged over the weekend that Mr Naghshineh had formulated an alternative business plan to raise £150 million from selling 200 leases for the high street stores. He would then use the money to take the stores upmarket.

With little value in the retailer’s equity, Mr Naghshineh must convince its bankers that he can offer a better deal than Hilco, or what the banks would recoup if they put the group into administration and sold its assets.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive