MFI Furniture Group has agreed to sell its loss making retail operations to private equity group Merchant Equity Partners (MEP) for a nominal 1 pound, sending its shares up over 8 percent on Friday.

MFI said it would pay MEP, which is run by veteran investment banker Henry Jackson, 53.1 million pounds next September and, if MEP invested the same amount, would put in another 12 million pounds in April 2008.

Following the sale, which is subject to shareholder approval and is expected to complete by October 23, MFI will change its name to Galiform and focus on its Howden Joinery business.

MFI's share price has fallen by around half over the past three years, as stiff competition and a slowdown in the UK housing market drove its retail business, which sells kitchens and bedroom furniture from over 200 stores, into a loss.

At 07:20 GMT (8:20 a.m. British time) the shares were up 5.1 percent at 92 pence, off an early high of 95p.

MFI plans to open 60 new Howdens depots in the UK next year and add new depots at a rate of 40 a year, taking the total to more than 500.

Howden Joinery continues to make good progress in line with management expectations ... There has, however, been some upward pressure on central costs ... The continuing group would normally expect to record a modest trading loss (this financial year), MFI said.

MFI Chief Executive Matthew Ingle said the board had looked at various options for the retail business but decided the sale was in the best interests of shareholders.

The retail business posted 14.2 million pounds in operating losses in the 24 weeks to June 10 on a 25 percent fall in revenue to 311.8 million pounds.

Since Ingle's appointment in October 2005, MFI, which started out in the 1960s making flat pack furniture, has launched a restructuring programme, which included asset disposals, store closures and job cuts.

It expected to incur a net exceptional loss on disposal of approximately 180 million pounds in the current financial year.

In July the company reported an underlying pretax loss of 5.7 million pounds for the 24 weeks to June 10.