Kingfisher sells off loss-making electricals chain for €1

Kingfisher has kick started its quest to become a pure do-it-yourself retailer by offloading its loss-making German electricals business for less than £1.

The group said yesterday it will take a £190m charge to cover the disposal, which includes a cash payment of £35m to ProMarkt's new owners, Michael and Matthias Wegert, to help cover running costs.

The move surprised the City, which had feared Kingfisher would have to close down the chain of 92 electricals stores across Germany and Austria at a cost of up to £150m. Kingfisher shares gained 1p to 199p.

Matthew McEachran, at Investec Securities, said: "This is a critical deal for Kingfisher, which has begun the essential disposal process with the biggest problem area ... It may well be regarded in time as the 'deal of the century'." Aymeric Poulain, at Merrill Lynch, said: "To get the problems and liabilities out of the way for a cash cost of £35m is a much better deal."

The disposal for a nominal €1 sees ProMarkt return to its former owners, the sons of its founder, Egon Wegert. Kingfisher bought the business via a series of deals between 1998 and 2000, paying £111m in total. ProMarkt is expected to make a loss of £35m for the year ended this month, bringing total losses since Kingfisher bought it to more than £80m.

Kingfisher is also providing a €32.5m loan to help ProMarkt cover increased spending between August and January when it stocks up for the key Christmas and January sales trading period. The loan is being made on normal commercial terms, it said. ProMarkt operates 92 electrical stores under its own name and 93 Foto-Radio Wegert photographic stores. It also owns a photographic processing laboratory and an online business.

Francis Mackay, Kingfisher's chairman, said the deal "represents another key step towards the separation of our electricals business". Kingfisher's electricals division is the third-biggest in Europe and includes Comet in the UK and the French chains Darty and BUT.

The expected demerger will be the first task for Gerry Murphy, the former head of Carlton, who takes over as Kingfisher's chief executive at the start of next month.

Mr Murphy will replace Sir Geoff Mulcahy, who spent 20 years building up Kingfisher into a retail conglomerate worth more than £5bn. Sir Geoff retired in November, months earlier than expected, amid speculation that he had fallen out with Mr Mackay.

The sale of ProMarkt comes one week after Kingfisher announced the closure of Castorama's German stores at an exceptional loss of £35m.