UPDATE: Berggruen Asks Karstadt Administrator To Extend Talks

Billionaire investor Nicolas Berggruen has asked Karstadt's insolvency administrator to extend the deadline for completing negotiations with Karstadt property owner Highstreet until July 30, as talks to seal a deal are behind schedule and unlikely to finish before the current deadline.

A spokesman for Klaus Hubert Goerg, Karstadt's insolvency administrator, confirmed that Berggruen had sent a letter requesting the extension and planned to discuss the matter with Berggruen next week. A spokesman for Berggruen's holding company confirmed the letter to Goerg, dated July 1.

Berggruen's request to extend the negotiation period underlines the ongoing difficulties in closing his deal to buy Karstadt. Berggruen signed a tentative agreement to acquire the iconic department store brand last month, but closing the deal hinges on reaching an agreement with its property owners, including the Highstreet real estate consortium led by Goldman Sachs Group Inc. (GS).

Berggruen has already secured approval from the majority of shareholders and lenders in the Highstreet consortium, but doubts he can meet the deadline with all of its lenders by the current July 15 deadline. Failure to reach an agreement would result in cancelling the deal and start a break-up process for Karstadt, a giant department store chain that employs more than 25,000 people around Germany.

Berggruen and Highstreet have for weeks haggled over his request for lower rents, to share upside in Karstadt's future profit and to restructure Karstadt into separate operating groups under one parent company.

Although Berggruen has requested the extension, he will only accept it if Highstreet shows it is willing to reach a deal, according to one person familiar with the matter.

Under Berggruen's conditions, Highstreet must give notice by July 6 that it will host an extraordinary meeting of shareholders to discuss the outstanding deal terms. Berggruen has further demanded that Highstreet obtains internal approval by July 14 to the terms of the Karstadt acquisition he has proposed, the person familiar with the matter said.

A spokesmen for Highstreet declined to comment.

Berggruen has already reached an agreement with the majority of Karstadt's shareholders and its lenders, including several of the noteholders in Fleet Street Finance Two PLC, a commercial mortgage backed security comprised of Karstadt property debt and with a nominal value of around EUR1.19 billion. Senior noteholders controlling a nominal value of around EUR780 million, including members of Highstreet, haven't to date agreed to conditions for the Karstadt deal layed out by Berggruen in a term sheet.

Highstreet acquired the bulk of Karstadt properties in a leaseback deal several years ago from Karstadt's former owners. Critics argue that Highstreet has charged exorbitant rents that contributed to Karstadt's demise, and Berggruen wants new lease terms to help improve profitability.

According to a copy of the term sheet seen by Dow Jones Newswires, Berggruen requested that Karstadt pay an annual rent of EUR210 million until September 2011. Rents will then gradually rise to EUR240 million by September 2018.

Berggruen further wants to revise Karstadt's master lease agreement so that the department store will consist of standard, sports and premium units, and have an umbrella holding company.

He also wants Highstreet to invest EUR30 million in Karstadt, with his company contributing EUR70 million.

Berggruen won a months-long bidding process to acquire Karstadt earlier this month, beating out Highstreet and another buyout fund, Triton.

Karstadt was forced into an insolvency process and auction after its parent company Arcandor AG (ARO.XE) last year failed to line up a government bailout to stay afloat.

By William Launder, Dow Jones Newswires; +49(0)6929725515; william.launder@dowjones.com

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