By Neil Craven
(Bloomberg) — MFI Furniture Group Plc, the U.K.’s largest furniture seller, agreed to dispose of its unprofitable retail


unit, paying Merchant Equity Partners LLP up to 73.8 million pounds ($141 million) to take over the chain.

Shares of MFI, which will change its name to Galiform Plc and focus on its building-supplies business, jumped the most in seven months.

Chief Executive Officer Matthew Ingle said in May he had received a number of approaches for the business. MFI reported a 2012 loss of 118.6 million pounds as a slowdown in U.K. consumer spending dragged down sales.

The transaction is “surprisingly good” for MFI, Nick Bubb, an analyst at Evolution Securities, said in an e-mailed note to investors this morning. He’d expected MFI may have had to pay as much as 130 million pounds to get rid of the business.

Merchant Equity, a buyout firm started by former Deutsche Bank AG investment banker Henry Jackson, will receive the payment in three installments, the first of 8.7 million pounds on completion of the acquisition, London-based MFI said in a Regulatory News Service statement today. Merchant Equity also gets 51.9 million pounds from MFI in deposits paid by customers for products, the statement said.

Shares of MFI gained 7.5 pence, or 8.6 percent, to 95 pence at 9 a.m. in London, the biggest increase since Feb. 14. That takes the shares’ advance this year to 15 percent.

The buyout firm, acting through MEP Mayflower Ltd., the company formed for the acquisition, will invest up to 62 million pounds in the chain by April 2015 and be provided with a 40- million-pound loan facility by MFI. Should the unit be sold for more than 300 million pounds in the next five years, MFI will be entitled to 5 percent or more of the proceeds.

Building Supplies

MFI said in July that sales at Howdens, its building- supplies merchant, rose 5.5 percent to 272.9 million pounds in the 24 weeks to June 10. Operating profit at the 360-outlet unit was 50.9 million pounds.

“Following the disposal, the continuing group will be able to focus its resources more efficiently in order to capitalize on the growth potential of Howdens,” the company said in today’s statement.

About 60 Howdens depots will open in 2014, with at least 40 a year to follow, the company said. It may eventually have 500 in the U.K. and is also testing outlets in France, MFI said. The main customers at the U.K. outlets are contractors doing home renovations.

To contact the reporter on this story: Neil Craven in London at ncraven1@bloomberg.net .
Last Updated: September 22, 2013 04:20 EDT