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(Adds Wesfarmers statement)
By Paul Sandle
LONDON, Jan 13 (Reuters) - British takeover target HomeRetail said on Wednesday it was in advanced talks tosell its Homebase home improvement stores to Australia'sWesfarmers for 340 million pounds ($490 million) incash, allowing it to focus on its Argos chain.
If successful, the move by conglomerate Wesfarmers,Australia's dominant hardware retailer and second biggestsupermarket owner, would mark its first acquisition offshore.
"The UK home improvement and garden market is an attractiveand growing market," Wesfarmers said in a statement confirmingthat it had made a conditional offer for the UK's second largesthome improvement and garden retailer.
Supermarkets operator Sainsbury's made an approachto buy the whole of Home Retail in November - a couple of monthsafter Wesfarmers started talks - but its interest lies in HomeRetail's bigger Argos general merchandise business, according tothe rationale it published earlier on Wednesday.
Home Retail, responding to a Sky News report, said it wasfinalising the Homebase sale. Home Retail and Wesfarmers saidthere was no guarantee it would conclude.
Wesfarmers said its aim was to "reinvigorate" Homebase'sassets and build a Bunnings-branded business over three to fiveyears. Bunnings is Australia's leading home improvement chain.
Home Retail considered selling Homebase in 2014, but decidedinstead to shrink the number of stores by a quarter while itfocused on Argos, which contributed about six times as muchoperating profit as Homebase in its 2015 financial year.
Home Retail Chief Executive John Walden said a salerepresented good value for shareholders as it would come about ayear into a three-year improvement plan for the chain, whichtrails Kingfisher's B&Q and Travis Perkins' Wickes in the British DIY market.
"The sale would allow the group to focus on Argos and itstransformation plan, with an improved balance sheet andfinancial position, which I believe represents an even greateropportunity for building long-term shareholder value," he said.
Sainsbury's jointly founded Homebase and owned the chainuntil 2000, but it barely mentioned the stores when it laid outthe "compelling" logic behind its ambitions for Home Retail,leading to speculation that it would immediately offload thebusiness to private equity or another retailer.
A sale to Wesfarmers relieves Sainsbury's of that task. Ithas until Feb. 2 to make a firm offer or walk away.
Analysts at Investec had put a value of 1.45 billion poundson Home Retail, based on their assumptions of an equity value of230 million pounds for Homebase, 360 million for Argos and theremainder from cash, its loan book and freehold property.
Home Retail said about 200 million pounds of the proceedsfrom Homebase would be returned to shareholders, while 75million would go on restructuring and deal costs and 50 millionwould be paid into its pension scheme.
It said selling the business, which contributed 19.8 millionpounds in operating profit in its 2015 financial year, wouldsignificantly improve its balance sheet, mainly by reducing itsstore leasing liabilities.
Wesfarmers, which is being advised by Lazard, declined tocomment on how it would fund the cash deal.
Home Retail said it would update the market on its Christmastrading on Thursday.
($1 = 0.6925 pounds) (Additional reporting by Sonali Paul in Melbourne; Editing byKate Holton and Elaine Hardcastle/Mark Heinrich)
