Household International Corp. has tentatively agreed to sell its merchandising subsidiary, one of the nation's largest retail operations, for nearly $700 million.

The leveraged buyout was initiated by a group of investors including Donaldson, Lufkin & Jenrette Securities Corp., a New York investment firm, and FoxMeyer Corp., a Denver drug wholesaler. It is expected to be completed by the end of the year, Household International said Tuesday.

Household Merchandising, with annual sales of $5.4 billion, includes 176 Von's supermarkets in California and Nevada, 739 TG&Y discount stores in the Sun Belt, 1,629 Ben Franklin variety stores and 1,079 Coast-to-Coast hardware stores.

In addition to the merchandising subsidiary, Household International, a company that reported $8.3 billion in sales last year, owns Household Finance Corp., National Car Rental and a manufacturing subsidiary.

It was the second leveraged buyout plan disclosed this week for a major retailer.

On Monday, executives of R. H. Macy & Co. offered to take their company private in a $3.6 billion leveraged buyout.

In a leveraged buyout, the purchasers use mostly borrowed funds to pay for their acquisition, then pay back the loans either with income generated by the business or by selling part of its assets.

The investment group offered a cash payment to Household International of an amount equal to the company's book value for the merchandizing unit -- $565 million at the end of last year -- and an additional $125 million in notes. Household International also would retain a 10 percent interest in the business.

"They approached us. We had no intention of selling," said Donald Clark, the chairman of Household International.

"But if they were willing to pay what we deemed a fair price, it seemed to us that it was an opportunity to maximize the value of a subsidiary for our shareholders and concentrate on our other three businesses," Clark said.

Proceeds from the sale will be used to reduce corporate debt, repurchase shares or finance aquisitions, he said.