The deal is the latest in a series of moves by Kingfisher's chief executive, Sir Geoff Mulcahy, to make Kingfisher a pan-European force. It also makes the combined group the third largest DIY retailer in the world after Home Depot and Lowes of the US.
Commenting on the deal yesterday, Sir Geoff said: "The merger is founded on our shared belief that successful mass-market retailers will combine strong local market positions with international expansion, thus providing customers with benefits of scale in value, range and service."
Analysts welcomed the deal, which is expected to be earnings-neutral in its first year and make a positive contribution thereafter. Nick Bubb, retail analyst at SG Securities, said: "It is a very clever deal as the alternative - making a bid for Castorama - would have been very expensive. They should be able to get good synergies and it increases Kingfisher's exposure to the French economy at an attractive time in the cycle."
Kingfisher shares closed 17.5p higher at 528.5p.
Kingfisher will receive shares representing 54.6 per cent of Castorama share capital. However, it will be restricted to the exercise of 50 per cent of the votes for two and half years.