US INVESTMENT fund KPS Capital has emerged as the front runner in the race to buy luxury goods group Waterford Wedgwood out of receivership.

A deal looks likely to be done this week and it is understood that the Government could provide up to €10 million in aid to the company under its new owner.

The high-end crystal and china manufacturer’s banks placed it in receivership last month after it failed to make interest payments to holders of its corporate debt on time in the closing weeks of last year.

Two possible buyers – private equity funds KPS and Clarion Capital – have since expressed interest in buying the group and have begun negotiations with receiver David Carson, of Deloitte.

Sources said yesterday that KPS was now more likely to succeed, and that it is willing to maintain manufacturing at the group’s headquarters in Kilbarry, Waterford.

A key concern of the group’s Irish employees and their trade union Unite has been that a sale to a private equity fund could signal the end of manufacturing at Waterford.

It is understood that KPS is willing to restart production at the Kilbarry plant, which ceased manufacturing 10 days ago after the receiver ran out of cash.

As well as negotiating with Mr Carson, the two bidders have held talks with Government and trade union representatives. Discussions continued over the weekend.

The Government may be able to provide some support to the company once it restarts operations under a new owner. Sources said that there may be up to €10 million available to the business.

KPS is based in New York and specialises in investing in manufacturing businesses. In the past, it has bought into companies involved in sectors such as motor parts, heavy engineering and paper milling. Many of the businesses in which it has invested have been in difficulty or were overburdened with debt.

KPS has been running the rule over Waterford Wedgwood since last year. The fund is particularly interested in the group’s brands, which include Waterford Crystal, Wedgwood and Royal Doulton china and Rosenthal porcelain.

Clarion is also headquartered in New York. It focuses on buying businesses with high-end brands or which are involved in the entertainment industry. In the US, it owns Hartmann, a Tennesse-based manufacturer of luggage.

The fund advised Waterford Wedgwood on the sale of kitchenware manufacturer All-Clad in 2004. Its previous investments include Imax Cinemas and Snapple drinks, both of which are familiar to Irish people.

Former Waterford Crystal chief executive John Foley is involved in the Clarion bid.

Mr Carson committed himself to selling Waterford Wedgwood as a going concern when the banks appointed him in the second week of January. Shortly after his appointment, his firm confirmed that up to 10 prospective buyers for Waterford had approached it.

Only KPS and Clarion have since confirmed their interest. KPS announced its interest within days of the receiver’s appointment. Its rival formally wrote to Mr Carson the weekend before last and declared its interest in bidding for Waterford Wedgwood.

• Confusion surrounded the position of 21 workers employed by caterers at Waterford Crystal’s Kilbarry plant after the receiver David Carson terminated the contract of Campbell Catering.

Campbell says it was informed last Friday that a new service provider had been appointed and would be operating on site from yesterday. However, there was no sign yesterday of any new contractor and angry staff expressed concern over their jobs and the manner in which they had been informed of the change.