Under the long-awaited deal, Merchant Equity Partners (MEP) will take control of the 200-store business. MFI has made supply arrangements with MEP.
Following the sale, which is subject to shareholder approval, MFI said it planned to change its name to Galiform and focus on the growth potential of its Howden Joinery business.
Chief executive Matthew Ingle said the group had considered various options for the retail business, but had decided a disposal was in the best interests of shareholders. He said: 'We believe that a restructuring of retail within the group would carry considerable operational and financial risks. Exiting retail will allow us to focus on the growth potential of the highly profitable Howden Joinery business.'
The company will hold an extraordinary meeting next month to vote on the sale. If shareholders vote in favour of the disposal, it is expected to be completed by October 23.
As part of the transaction, MFI said it would pay Merchant, which is run by former banker Henry Jackson,£53.1 million in September next year and make a further investment of£12 million in April 2008, subject to MEP matching the amount.