RETAIL company Kingfisher is to demerge Woolworths and Superdrug after calling off talks to sell both high street chains.

The group has decided to press on with plans to put the two chains into a separately-quoted company along with its entertainment business.

Kingfisher has received approaches for both Woolworths and Superdrug since announcing its break-up move last September.

It wants to concentrate on building up its electrical and DIY business, which includes UK names B&Q and Comet.

Chief executive Sir Geoff Mulcahy said he believed a demerger, to create a separate general merchandise division, was the best option for "shareholders, employees and the long term success of the business".

He said: "These businesses are now in good shape to prosper as a stand alone UK-listed company with a dedicated management team focused on future success."

The demerger will take place by the end of July - six months into the group's current financial year.

Kingfisher also hopes to sell the freehold of 185 Woolworths stores in a move which could generate between £400m to £600m in the coming months.

The general merchandise business will employ more than 50,000 people in 1,600 high-street stores in the UK.

As well as Woolworths and Superdrug, Kingfisher also plans to spin off its music chain MVC, e-commerce music operation Streets Online, and CD, DVD and video distributor Entertainment UK into the separate business.

The announcement follows months of speculation on who might buy either Woolworths or Superdrug.

Kingfisher said last month that it was "well advanced" on talks to part with both Woolworths and Superdrug as it reported a five per cent rise in sales for the first quarter.

It is believed Dutch pharmacy chain Kruidvat came closest to buying Superdrug for about £270m.

Private equity groups Charterhouse Development Capital and Schroder Ventures have been linked in recent months with Woolworths, now headed by former Railtrack chief executive Gerald Corbett.

More than 55 per cent of Kingfisher's turnover will be generated outside the UK after the demerger, with 1,300 stores in 16 countries.

A spokesman would not confirm whether Mr Corbett, appointed in March, would remain with the demerged group.