Kesa in talks to sell French unit to private equity

Kesa, the UK-based electricals retailer, is in exclusive talks to sell its French furniture and electricals business, But, for €550m (404m) to a consortium lead by the private equity firm Merchant Equity Partners.

Kesa, which also owns Comet in the UK and Darty in France, put But up for sale about six months ago after receiving expressions of interest from several companies. News of the exclusive talks with the consortium, which also includes Goldman Sachs and the United States-based real estate group Colony Capital, sent Kesa's shares up 10p to 233p yesterday.

The deal requires regulatory approval and is subject to consultation with a committee of French workers, which is likely to take another couple of months.

Although But, which has 112 stores across France, accounts for about a quarter of Kesa's group sales, it is seen as an anomaly in the British company's portfolio as the French chain is primarily concerned with furnishings.

The company's disposal will allow Kesa, which last year rejected a 1.7bn approach from the private equity firms KKR and Permira, to concentrate on its core electricals businesses in the UK and France.

Merchant Equity Partners specialises in the acquisition of underperforming businesses in the retail and consumer sector. The private equity firm purchased MFI, the troubled UK furniture retailer, for a nominal 1 last year and hopes to improve But's profitability and value through an operational over-haul.

But, however, is not in the same straits as the UK furnishing group was when Merchant Equity Partners moved in.

After some troubled years, the French retailer achieved a 3.5 per cent rise in revenues last year to €876.4m (647m) and a 6 per cent rise in its operating profit to €53.1m.

The deal is also taking place at a time when consumer spending in France is showing more resilence than in the UK, where signs of a slowdown are evident. However, the strengthening euro, higher inflation and tighter credit conditions internationally could hit retail sales in coming months.