MFI sells troubled stores for £1

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Struggling furniture chain MFI today agreed to sell its loss-making retail arm for just £1.

The company struck a deal to offload its 200 stores to private equity firm Merchant Equity Partners for the nominal fee.

MFI will also pay Merchant £74 million between now and April 2008 to invest in the stores, which its manufacturing arm will continue to supply.

It will change the name of the rest of the business, which also includes Howden Joinery, to Galiform.

MFI said its manufacturing business will continue to supply the stores in the short term but will then exclusively build kitchens and bedrooms for Howden Joinery, which has 362 outlets around the UK.

Following the sale, which still requires shareholder approval, it plans to take the number of Howden Joinery sites to more than 500, with 60 set to open next year.

"Howden's growth in the past two years has been restricted by the issues faced by the retail business," it said.

"The proposed disposal of retail will provide management with the opportunity to focus on accelerating Howden's roll-out plan."

MFI will hold an extraordinary general meeting next month for its shareholders to vote on the sale and the proposed name change.

The retail business has struggled from supply chain problems and made operating losses of £85.1 million last year.

The problems saw MFI shares plummet from 143p in February last year to as low as 65.25p in November, although they stood at 87.5p when the deal was agreed early today.

MFI began the auction of its stores in May after revealing it had received a number of approaches for the business, which has suffered from soaring costs.

On top of the £74 million invested by MFI, Merchant is set to plough £102 million into the company.

News of the sale sent MFI shares 5% higher today.

The company made its name selling "flat pack" kitchens and bedrooms but has come under pressure in recent years from growing demand for custom-built fittings.

In response, MFI set up Howden Joinery, which principally supplies small builders fitting kitchens and bedrooms for customers.

Although sales at Howden Joinery have grown to more than £600 million, the retail business has seen operating profits tumble from £71.2 million in 2003 to losses of £49 million last year.

MFI chief executive Mark Ingle said the board considered a number of options for its retail arm but decided keeping hold of the stores was too risky.

"The disposal of retail on the terms agreed is in the best interests of shareholders," he said.

Merchant is focused on turning around retailers and is headed by ex-Deutsche Bank managing director Henry Jackson, former Halfords chief executive and Dixons director David Hamid, and one-time Somerfield chairman John von Sprecklesen.