UPDATE 5-PPR in talks to sell Conforama in $1.6 bln deal

* Deal is for 1.2 bln euros plus working capital balance

* PPR shares down 1.7 pct, Steinhoff shares up 4.4 pct

* JPMorgan says Quiksilver could be PPR target, shrs surge

* Steinhoff gets bigger presence in Europe's No. 2 economy (Adds Steinhoff CEO comments from newspaper interview, updates shares)

By Helen Massy-Beresford and Tiisetso Motsoeneng

PARIS/JOHANNESBURG, Dec 9 (Reuters) - PPR (PRTP.PA) is in exclusive talks to sell its Conforama furniture unit to South African group Steinhoff (SHFJ.J) in a $1.6 billion deal that would help the French company focus on sport, lifestyle and luxury.

The deal would give Steinhoff, a furniture maker and retailer, a larger presence in France, Europe's second-biggest economy and one of the largest markets for household goods on the continent.

PPR, the French luxury and retail group led by Francois-Henri Pinault, said the deal valued Conforama at 1.2 billion euros ($1.6 billion) in cash, while the working capital balance Conforama was due to pay PPR would be repaid on closing.

This puts the total value of the deal for PPR at around 1.6 billion euros, a source familiar with the matter said.

For three years, PPR has been looking for buyers for Conforama and has said it plans to return to the acquisition trail once it has disposed of the business. It wants to build a sports and lifestyle unit around Puma (PUMG.DE), the German brand in which it has a 71 percent stake.

Analysts from JPMorgan Cazenove said PPR could target Quiksilver (ZQK.N), the maker of surfing and skateboarding clothing, for its next acquisition, sending shares of that company sharply higher in New York.

"Burberry is 'too big a fish' for PPR in our view. We think Quiksilver could be of interest to PPR as a market leader in the lifestyle space focused on surfing, skateboarding and snowboarding."

Quicksilver shares surged 15.7 percent to $5.36 by 1911 GMT.

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Steinhoff rose 4.4 percent, with one analyst saying the deal would give the South African company more muscle abroad.

"It's a sensible deal in that it gives them a penetration into Europe's second-largest economy," Roger Tejwani, an analyst at Johannesburg-based Credit Suisse Standard Securities.

"Steinhoff already has a wholesale business in Europe and this deal could probably help them sweat their supply chain a bit more."

Steinhoff Chief Executive Markus Jooste told a French newspaper Conforama's management would stay on to expand the company in its home market and grow in Portugal and Spain.

"Our philosophy is to let the local management team chose the best method. But we will show Conforama how we have proceeded in other countries," he told La Tribune. He said Steinhoff had no other acquisition plans in Europe.

PPR shares closed 1.65 percent lower at 124.80 euros, against a 0.7 percent firmer French CAC-40 main index .FCHI.

GUCCI, LOFT AND LAMPS

PPR, whose Gucci Group accounts for the bulk of its valuation, also wants to sell its Fnac electronics, books, CD and DVD unit, as well as its Redcats catalogue business.

Conforama, bought by PPR in 1991, sells furniture including the 790-euro white Loft sofa, household appliances and decorative objects such as the 38-euro Leny desk lamp. It has around 180 stores in France, which generate 70 percent of sales.

"Conforama was in pole position in the disposals timetable. The sale of Fnac is handicapped by the weak valuations of high tech product brands and cultural products and that of Redcats requires splitting its businesses," CM-CIC analysts wrote in a note.

After a tough 2009, Conforama, which employs 12,000 people in Europe, posted sales of 2.2 billion euros in the first nine months of 2010, up 4.8 percent on a comparable basis.

Conforama has been losing market share to IKEA [IKEA.UL] for a decade, and the Swedish group is now France's top furniture retailer.

The deal should be concluded in the coming weeks, after which it would be submitted to Steinhoff's shareholders at a general assembly and then competition authorities, PPR said.

PPR Finance Director Jean-Francois Palus told a conference call the transaction should be completed by around March.

PPR said Steinhoff shareholders owning more than 50 percent had already undertaken to vote in favour of the deal.

Steinhoff, which is also looking to expand in Africa, is backed with a 600 million euro acquisition facility from a syndicate of six banks. ($1=.7520 Euro) (Additional reporting by Pascale Denis, James Regan and Caroline Jacobs in Paris; Editing by David Cowell)