Woolworths this morning confirmed a report in The Times that it is in talks to sell its retail business.

The company was forced to put out a statement through the London Stock Exchange that it was "in prelimary discussions" and that there was no assurance that an offer would be forthcoming. It gave no further details.

Shares in the retailer fell 13.39 per cent to 3.3p in early trading.

The Times reported today that the struggling high street chain is in talks with Hilco, the specialist distressed fund, to sell the business for just £1.

Negotiations continue over how much of Woolworths' £385 million debt the fund would assume.

A sale of the business would leave the quoted company with two standalone businesses — 2entertainment, a DVD publisher, and EUK, a specialist distribution business.

The deal would require the approval of shareholders and of the banks, which recently appointed restructuring advisers from Deloitte, the accountancy firm, to help them on further loan negotiations with the company.

There is also the problem of Woolworths' £100 million pension fund deficit, which Hilco is unlikely to want to assume.

Any deal would be a significant victory for a company that many believe would struggle to survive Christmas.

Hilco, which has worked with many big name retailers including Sir Philip Green and Sir Tom Hunter, is viewed as one of the few funds with the skills to turn the ailing retail empire around.

It was catapulted into the spotlight in 2005 when it bought up the debt of Allders and pushed the department store chain into administration. The move was controversial because members of Allders’ pension fund lost out while Hilco made a huge profit.

A host of high-profile retailers including Malcom Walker, the Iceland boss, Sir Alan Sugar and the Iranian tycoon Ardeshir Naghshineh have bought into Woolworths in the hope of extracting unrealised value. Some investors claim that its property portfolio is worth much more than was previously estimated.

Woolworths, whose board has been advised by a KPMG corporate advisory and restructuring team for at least 12 months, is in parallel negotiations with Burdale Financial, a division of the Bank of Ireland, and GMAC, its lenders, about the sale of the retail business.

The group also faces crunch talks with them to approve next year’s budget and financing. Woolworths last refinanced only a year ago.

One possible bidder for the 2entertain arm is BBC Worldwide, which already owns 60 per cent of the joint venture. It was put up for sale by UBS, the group’s investment banking adviser, this year but later withdrawn when no attractive bidders were found.

The BBC has the right to buy out the 40 per cent stake held by Woolworths before any other bidder.

Shares in Woolworths, which have been worth less than 10p for most of the year, closed 5.81 per cent down at 3.8p yesterday. Retail analysts have suggested they have no value.

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