Travis Perkins, the builders' merchant and Wickes DIY group, is interested in buying some of MFI's up-for-sale stores.
MFI has confirmed it is in talks with Merchant Equity Partners, the private equity group, regarding the disposal of its struggling UK Retail chain.
It is thought Travis Perkins, with 179 UK Wickes outlets, could be interested in buying up to 20 of the 214-store business to accelerate the expansion of its DIY chain.
Travis Perkins ran its slide rule over the entire chain, but decided against a full bid. It is looking at selective out-of-town stores as it works towards 300 Wickes outlets.
"We did take a look at the MFI estate, but many are over-rented and not very attractive," Travis Perkins chief executive Geoff Cooper said. "However, we have identified
up to 20 stores that could fit our expansion plans. We'll have to wait and see how talks between MFI and MEP progress."
A deal could be days away and the news saw Travis Perkins shares end up34p to 1680p and MFI down 3.75p at 85p.
MEP is thought to have lined up a management team for the chain led by Gary Favell, former chief executive of Wyevale Garden Centres.
The likely sale of MFI's retail business comes at a crucial time for the UK's home improvement and DIY industry. The sector struggled throughout the tail-end of last year and into 2006 and only in recent months has trading picked-up - although underlying sales are still fragile.
Last reported like-for-like sales at Wickes in July are running at minus 4.4 per cent, although on a day-to-day basis some stores are doing better than others. At the height of the downturn last year, like-for-like sales at Wickes were down in the mid-teens.
However, following this month's quarter-point rise in interest rates to 4.75 per cent, retailers are now facing the prospect of further rate hikes which could choke-off consumer spending and put the recovery on hold.
"We expected a quarter point rise and we could cope with another rise to five per cent," said Mr Cooper. "But talk of anything over that could stall the market and dampen the recovery."
Mr Cooper noted food and energy costs are featuring in the inflation figures and that this, too, could affect consumer spending patterns.
"If you've got a family spending £60 a week on shopping and this rises to £63 then they might hold off re-decorating the bathroom or whatever. It's a psychological issue and it depends on the 'mood music' about further rises," he continued.
He said there was unlikely to be any quick turnaround for the Wickes business, although it was showing gradual signs of improvement.
Travis Perkins recently opened its 1,000th store and now has 1,009 nationwide branches, including Wickes.
Analysts have long speculated on whether the group was reaching saturation point in the UK and some have argued that it needs to take the core merchanting concept into Europe to keep momentum going.
Mr Cooper said the potential roll-out of its new Benchmarx joinery store concept and continued scope for further UK trade branches, meant such talk was premature.
The group has identified 440 potential UK sites for Wickes and the core builders merchants business.
"European expansion is not on the agenda, but we're well positioned if we decide to do it at some point in the future," said Mr Cooper.
The group is currently trialling six Benchmarx stores aimed at the specialist joinery trade.
Mr Cooper reckons the brand could have the potential for a national roll-out of up to 300. "This is a £1.3 billion market. At the moment it is dominated by Howden, which has a 40 per cent share," he added.
Howden is owned by MFI, but unlike UK Retail, is successful.
Asked if Travis Perkins may be interested in buying Howden, Mr Cooper said the MFI management still had "a lot of work to do" before anyone would want it.
However, analysts believe it could generate interest with both trade and private equity buyers likely to be attracted.