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KarstadtQuelle Facing Potential Stalemate

A handful of shareholders could derail KarstadtQuelle’s $1.8 billion restructuring plan, forcing it into bankruptcy.

BERLIN — A handful of shareholders could derail KarstadtQuelle’s 1.37 billion euro, or $1.8 billion, restructuring plan, forcing Germany’s largest department store group into bankruptcy.

At the beleaguered retail catalogue group’s extraordinary shareholders meeting Monday, 99.76 percent of voting shares present voted in favor of a capital increase of 500 million euros, or $652 million at current exchange. However, about six shareholders, or 0.24 percent, raised objections, with two launching legal challenges to the capital increase.

The funds are required for the group’s massive restructuring plan, which calls for the sale of 77 smaller Karstadt department stores, the group’s 305-door SinnLeffers, Wehmeyer, RunnersPoint and GolfHouse specialty store chains, several logistics centers and other “noncore” activities.

The capital increase is also a key condition for a credit extension of 1.75 billion euros, or $2.3 billion, over the next three years, which the group’s house banks agreed to last week.

KarstadtQuelle could risk bankruptcy if the capital increase is blocked, supervisory board chairman Thomas Middlehof told shareholders at the meeting.

Legal challenges to the capital increase must be resolved by Friday, the deadline for a prospectus for the 93 million new shares to be sold in the transaction. The sale must take place this year, and the group cannot distribute the prospectus on Nov. 29 as planned with the objections in place.

Shareholders at the meeting also were presented with a lowered 2005 profit outlook. Christoph Achenbach, chairman of the management board, said while the group still expects to be in the black for 2005, it will “just” break even. In announcing the group’s restructuring plan in late September, Achenbach had pointed to 2005 earnings before taxes and amortization of 135 million euros, or $176 million.

This is no longer possible, he explained, due to continued consumer reluctance and difficulties in selling off properties at the desired price. Last week, the group announced it had sold its 82 percent stake in its Starbucks joint venture to the American coffee retailer for an undisclosed sum.

Stronger operative results are now first forecast for 2006, with EBTA then expected to reach a three-digit million figure, the group said.