German retail giant goes bust

"Arcandor AG today filed with the Essen District Court to open insolvency proceedings," the group said in a statement.

"This will affect a total of around 43,000 employees of the Arcandor group in Germany. Employee salaries are secure for the months of June, July and August," the statement said.

The group, which employs 70,000 people in Europe, two-thirds of whom work in Germany, said its department store chain Karstadt, as well as mail-order company Quelle, would also be affected by the insolvency.

Travel agency Thomas Cook, in which Arcandor holds a 52% stake, "will remain unaffected by the insolvency proceedings," the statement added.

Chancellor Angela Merkel told reporters that Arcandor now had a chance to merge with another retail firm and named Metro, Germany's largest retailer, as a possible partner.

Metro, which employs 300,000 people in 32 countries across Europe, Asia and Africa quickly expressed an interest in taking over its stricken rival.

"We remain, as before, committed to our proposal of taking over some 60 Karstadt sites and thereby saving the majority of jobs," Metro said in a statement.

"The door for talks and negotiations is open," it added.

On Monday, Berlin rejected the company's request for €650-million in state loan guarantees and €437-million in emergency loans but gave the firm one last chance to submit an improved bid.

But following an emergency meeting, the firm's board said it could no longer raise funds after the government rejected its plea for help.

"The insolvency application became necessary after Arcandor AG's requests for state loan guarantees and rescue aid were rejected and further requirements couldn't be fulfilled," the group said.

"As a result the company had no further prospects for sustainable financing.

"Given the fact that loans in the amount of €710-million will shortly become due, the company will be threatened with insolvency as of 12 June 2009," the statement said.

The German government's decision not to intervene to save the firm followed its efforts two weeks ago to keep carmaker Opel and its 25 000 workers afloat with billions of euros in aid.

Merkel has insisted, however, that Opel represented a "special case" and that Arcandor was in trouble already before the recession.

To qualify for funds from the so-called "Germany Fund" set up to help companies suffering in the economic crisis, firms must prove they were healthy before the financial crisis and have a solid plan for the future.

"We also have to pay attention to the taxpayers and so I think insolvency is an unavoidable step that should however be used as an opportunity," Merkel said.

The chairman of Arcandor's board, Karl-Gerhard Eick, said: "Even as the insolvency proceedings are ongoing, we will continue to fight to save as many jobs and locations as possible".

Source: AFP

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