Woolworths' failed home improvement chain Masters will close in December with some of the large warehouse stores to be converted into shopping centres by their new owners.
Woolworths has also sold its Home Timber & Hardware chain to Metcash - owner of the Mitre 10 chain - for $165 million as the supermarket giant finalises its exit from the hardware business.
The loss-making Masters business will be wound-up, and its stock sold off with all stores expected to close by December 11.
At the same time, a group called Home Consortium has agreed to buy the 61 Masters stores and 21 development sites to transform them into large-format retail centres.
Home Consortium includes the companies behind Spotlight Group and Chemist Warehouse.
It will transform the Masters sites into centres with a selection of retailers, including Spotlight, Anaconda, Chemist Warehouse, JB Hi-Fi, The Good Guys, Super Amart, Bunnings Warehouse and Woolworths supermarkets.
About $1.5 billion in gross proceeds is expected from the collective sales and after wind-down costs are factored in, Woolworths expects about $500 million in net proceeds.
Woolworths has promised to find Masters' staff jobs within the group or pay full redundancies.
It has also vowed to honour customer gift cards, warranties, returns, lay-bys and contracted home improvement projects.
Inventory divestment specialist GA Australia will manage the sale of Masters' stock which is expected to fetch $500 million.
Woolworths chief executive Brad Banducci, who was parachuted into the top position in February said these agreements follow an intense seven months of reviewing all possible options.
"This decision means management can focus on driving the momentum in our core businesess," he said in a statement on Wednesday.
He said the sale to Home Consortium was subject to the approval of its hardware joint venture partner Lowe's.
The supermarket giant has been looking to offload its hardware businesses since January following years of losses.
Metcash said on Wednesday it expects to wrap up the purchase of Home Timber by October.
Metcash said the purchase of the hardware wholesaler and retailer will give it a combined network of about 1,800 stores generating about $2 billion in annual sales.
The Australian Competition and Consumer Commission cleared Metcash's bid for Home Timber and Hardware in July after Metcash - which is a hardware wholesaler - promised to let independent stores buy products from other sources.
Woolworths is due to release its full-year profit results on Thursday. In February, it declared a $972.7 million first-half loss - its first in more than 20 years - due to $1.9 billion of writedowns related to its attempt to challenge Wesfarmers-owned Bunnings.
Shares in Woolworths and Metcash were both in a trading halt on Wednesday.
