DIY giant Kingfisher has agreed to sell its Castorama Italy business for €560 million (£440 million) to French home improvement retailer Groupe Adeo.

The deal is expected to be completed in the last quarter of 2008, pending clearance from the European Community Merger Regulation. Kingfisher said it would use the capital from the sale to reduce its net debt.

Kingfisher chief executive Ian Cheshire said: “This sale is consistent with our aim of delivering a step-change in shareholder value and is a good deal at this point in the economic cycle.

“We have built a successful and profitable business in Italy, which now needs more capital to continue its development. We believe we can achieve higher incremental returns on capital elsewhere in Europe and strengthen our balance sheet by reducing our net debt.”

Castorama opened in Italy in 1998 and has grown to 31 stores with more than 2,200 employees. In the year to February 2, 2008 it made a profit of£29 million on sales of£314 million.