UPDATE: Highstreet Set To Submit Karstadt Bid

The Highstreet real estate consortium will place a bid Thursday afternoon or Friday morning to acquire insolvent German retailer Karstadt, several people familiar with the matter told Dow Jones Newswires Thursday.

There is growing concern that none of the three binding bids that are expected to be submitted for Karstadt by Friday will be accepted, which could lead its insolvency administrator, Klaus Hubert Goerg, to once again extend the bidding deadline, people familiar said.

Karstadt is a former unit of Arcandor, the giant German retail and tourism company that filed for insolvency last year.

Key to the winning bidder's success will be the ability to implement broad structural changes for Karstadt and to reduce costs without alienating its labor union, which fears job cuts. Karstadt employs around 26,000 staff in Germany.

A bid by investment fund Triton was received with some skepticism after initial negotiations with Karstadt's labor representatives ended without an agreement. Another bidder, Berggruen Holdings, has had more success with Karstadt's union but says its bid depends on lowering rents for the retail properties.

Rents for Karstadt's branches total around EUR250 million to EUR280 million annually, compared with around EUR700 million to EUR900 million in annual staff costs, a person familiar with the matter said.

Highstreet, led by Goldman Sachs Group Inc. (GS), is already a major owner of Karstadt properties and widely considered the best match.

Through an acquisition, Highstreet would buy itself time to restructure and eventually divest Karstadt while simultaneously assuring it receives rental payments.

Without a buyer, Goerg, the administor, will be forced to launch a breakup process that would leave Highstreet with the difficult task of finding new renters for the specialized retail properties currently occupied by Karstadt.

-By William Launder and Paola Longo; Dow Jones Newswires; +49 69 29 725 515; william.launder@dowjones.com

Arcandor (GM) (USOTC:ACAGF)
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