Home Retail (LON:HOME) announced plans to sell DIY chain Homebase to Australian conglomerate Wesfarmers as it unveiled lower Christmas sales.
The group, which has received and rejected a takeover approach from Sainsbury's (LON:SBRY), said it was in advanced talks to sell Homebase for £340mln.
The pair began discussions in September, started due diligence under a confidentiality agreement in October and Wesfarmers made a firm offer in November.
Home Retail said Wesfarmers had completed its due diligence and they were finalising transaction documentation.
"However, discussions are ongoing and there can be no certainty that a transaction will be agreed," Home Retail said in a statement.
It said the proposed sale of Homebase followed a review of the business in 2014, initiated by the board and the group's then new chief executive, which introduced a three-year productivity plan that included improving store productivity, closing about a quarter of the shops, strengthening products and accelerating Homebase's online capabilities.
Under the proposed deal, Wesfarmers would acquire the entire Homebase business, including all stores and dedicated distribution centres.
Product brands owned by the group, such as Habitat, Schreiber and Hygena, will be excluded from the sale, but licensed for use by Homebase for one year.
Chief executive John Walden said it would represent good value for shareholders and an expansion opportunity for Homebase and its staff.
"The sale would allow the group to focus on Argos and its transformation plan, with an improved balance sheet and financial position, which I believe represents an even greater opportunity for building long-term shareholder value," he said.
Meanwhile, Home Retail said Argos total sales in the 18 weeks between August 30 and January 2 rose 0.9% but like-for-like sales dropped 2.2%.
It expects group benchmark pre-tax profit for the financial year ending February to be around the bottom of the current range of market expectations of £92mln to £118mln.
The group blamed volatile trading patterns resulting from particularly strong sales during Black Friday week, a shift in consumer demand from both the weeks before and after Black Friday, growth in digital trading, reduced numbers of customers in stores - particularly on high streets - and continuing effects of price deflation.
Homebase like-for-like sales rose 5% while total sales declined 4%.