Kingfisher to demerge Woolies and Superdrug

Kingfisher, the retail conglomerate, has abandoned talks to sell its Woolworths and Superdrug operations and said it would press ahead with a demerger and separate listing of the store chains by the end of next month.

The decision yesterday followed nine months of uncertainty that has led to accusations from shareholders that Sir Geoff Mulcahy, the chief executive, has dithered over the future of the general merchandise operations and undermined confidence in Kingfisher shares. Sir Geoff has revealed plans to sell Woolworths and Superdrug in September, along with Kingfisher's entertainment operations, but has insisted on a two-pronged strategy: looking for buyers at the same time as preparing a demerger.

The chief executive called suggestions that he had been indecisive "totally unfounded".

"We said we'd look at the options and make the best decision for shareholders, and that is what we've done," he said. "I know a number of people have said we've taken a long time, but it is quite a complicated process to go through, which is difficult for people outside the process to understand."

Shares in Kingfisher fell 5p yesterday to 448.5p, well below their 12-month peak of 630p last July, valuing the company at £6.3bn. It has underperformed the stock market by 25 per cent in the last year and its retail peers by 30 per cent.

After demerging, Kingfisher would be left with B&Q and Comet in the UK and Continental stores Darty, Castorama and But. Shareholders would receive one new share in the general merchandise business for every Kingfisher share they now own. Sir Geoff would remain chief executive of the pared-down Kingfisher while Gerald Corbett, the former boss of Railtrack, would run the general merchandise company.

Analysts at Dresdner Kleinwort Wasserstein, the investment bank, said a demerger rather than straight sale would be "slightly disappointing" because it would not raise cash that could reduce Kingfisher's £2bn debt and be used to speed expansion of the higher-growth DIY and electricals businesses.

They valued the general merchandise arm at £814m, excluding the value of its freehold property and debt. Kingfisher is in talks to sell and lease back the property, which could release cash of up to £800m.

Another analyst said it looked as if Sir Geoff had been forced into a demerger, as potential buyers would not offer a high enough price for the businesses. The Dutch pharmacy group Kruidvat was last month believed to be close to agreeing to buy Superdrug for about £250m, while the private equity groups Nomura and Cinven have been eyeing Woolworths, whose price tag is about £600m.

He added a demerger would create little shareholder value.