MFI, the retailer famed for its flat-pack furniture, yesterday confirmed it is in talks to sell off its retail arm, once valued at GBP1bn, for a "nominal consideration" - thought to be GBP1.
The group is in talks with investment fund Merchant Equity Partners (MEP), which was founded by veteran investment banker Henry Jackson, about the sale of its loss-making, 200-strong chain of stores.
MFI said a number of "significant issues" remain outstanding - thought to include what happens to the group's pension deficit. It added: "The terms currently under discussion include nominal consideration and cash contributions from MFI and the purchaser, as well as other features which could have a material bearing on shareholder value."
The firm's comments follow a report in the Financial Times saying MEP was confident it had beaten rival private equity group Apax to secure the retail unit, despite demanding a "dowry" from MFI.
The report said MFI had agreed to pay to have the business taken off its hands so that it can focus on its profitable Howden Joinery trade business. The FT said MFI would hand over the chain on a debtfree basis and also absorb existing pensions liabilities, while helping to fund a joint financing package to keep the business afloat.
The reported deal structure reflects the importance of the retail arm to the company's Howden manufacturing unit.
MFI's retail business, which has suffered in the past from supply chain problems, made operating losses of GBP85.1m in its last financial year - 171-per cent worse than the year before.
The group, headed by chief executive Matthew Ingle, began the auction of its retail arm in May after revealing it had received a number of approaches for the struggling business.
Richard Ratner, retail analyst at Seymour Pierce, said: "Matthew Ingle is doing the right things in trying to dispose of MFI Retail. However, while he is a first-class manager, he is having to pay heavily for the very serious mistakes of the previous management."
Ingle took over the hot-seat at MFI last October after a profit warning prompted the departure of former chief John Hancock. Since then, Ingle and his team have taken steps to revive the flagging retail arm - the kitchen product range has been reduced from 60 styles to 40 to improve delivery times, while in-store customer service has been improved and staff training days increased.
Shares in MFI firmed 2p to close at 89.5p last night.
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