US-based Home Depot, the world's largest home improvement retailer, is in takeover talks with Kingfisher Plc, but wants the UK company to dispose of its French business, the Financial Mail reported.

The paper, citing an unnamed well-placed source, said the takeover was discussed at a meeting in London between Kingfisher Chief Executive Gerry Murphy, Chairman Francis Mackay and Home Depot's Chairman and Chief Executive Robert Nardelli.

It said Mr Nardelli told the Kingfisher bosses that Home Depot was enthusiastic about their firm's operations in China and the UK, where it owns the B&Q chain, but its French business Castorama was a stumbling block.

Strict French employment laws would make any proposals to change the operation difficult and Home Depot did not want its maiden foray into Europe to damage its brand, it added.

Officials at Home Depot and Kingfisher were not immediately available for comment.

The paper also quoted the source as saying that Home Depot had also floated the possibility of a joint venture between the two companies in China, where Kingfisher already has a presence.

Last week, Goldman Sachs analyst Matthew Fassler said in a research note that Home Depot could see significant earnings lift from an acquisition of Kingfisher, but his firm has no view on the timing, probability or pricing of a potential deal.

Based on estimates for both companies, Goldman estimated Home Depot could achieve per-share earnings accretion of 7.8 per cent in 2005, assuming it pays a 20 per cent premium to Kingfisher's current share price.

Shares in Kingfisher ended last week at 252-3/4 pence, giving the company a market value of around £5.9 billion. Home Depot shares closed 0.8 per cent higher at $37.16 on Friday.