MFI today confirmed it is in talks to sell its troubled retail arm to private equity group Merchant Equity Partners for £1 in a deal that will see the two sides pour in an expected £100 million dowry to support the struggling business.

Talks are ongoing and several details are yet to finalised. "Things could move around a bit," a source close to the deal told Times Online.

A successful deal would allow MFI to spin off the loss-making furniture business's 200 stores to concentrate on its profitable Howden Joinery trade unit.

MFI said in a statement: "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."

Shares in MFI were 3.4 per cent or 3p higher at 90.5p in morning deals. To track the stock click here.

One of the subjects under discussion is MFI's pension liabilities, which stand at around £150 million, split between the retail business and Howden.

It is also understood that the unorthodox dowry payment may not be made entirely upfront.

A deal could be announced as early as this weekend - though sources close to MFI said they felt that that was optimistic.

The sale value of £1 reflects the poor fortunes of the retail business, which had been valued at £1 billion a few years ago.

The unit, which has suffered in the past from supply chain problems, made operating losses of £85.1 million in its last financial year - 171 per cent worse than the year before.

MFI began the auction of the unit in May after revealing it had received a number of approaches for the struggling business.

Today’s statement confirmed speculation that talks were taking place with Merchant Equity Partners, which was founded by veteran investment banker Henry Jackson to invest in under-performing retailers.

MFI said: "A number of significant issues remain outstanding, and the discussions may or may not lead to a transaction which the board would compare with other options for MFI Retail."

The company recently sought revive the arm by reducing its kitchen product range from 60 styles to 40 in order to improve delivery times and increasing staff training.

However, MFI said last month that its level of central costs was still too high.

It has been reported that Goldman Sachs, the bank, and Cerberus, the hedge fund, are backing the MEP bid. It has also been speculated that MEP has lined up Gary Favell, the former chief executive of Wyevale Garden Centres, to run MFI.

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