The sluggish German economy has affected retailers

The firm has said that it needs its staff to back an overhaul of its operations, otherwise its financial backers could withdraw their support.

Unions oppose plans to sell 77 smaller department stores and offload other operations, threatening 9,800 jobs.

The firm said concessions offered at a meeting on Tuesday were not sufficient.

Threat of collapse

The struggling retailer has said it faces insolvency unless it can win employee support for a huge transformation of the business, which include plans to raise 500m euros in capital.

Services union Verdi, which represents half of the retailer's 100,000 staff, told the firm that its staff would be willing to give up holiday and Christmas bonuses.

However, it said that it was opposed to job and wage cuts as well as longer working hours - a key part of the retailer's recovery plan.

A spokesman for the retailer told Reuters that the union's proposals were "not enough".

GERMAN RETAIL GIANT Sales of 15.3bn euros in 2003 180 department stores 305 speciality stores 50% market share 100,000 staff Leading mail order supplier 50% stake in Thomas Cook

Verdi has claimed that as many as 20,000 jobs could be affected by the proposed changes.

These would see the retailer - which owns 180 department stores - move 77 stores into a separate business as a prelude to selling them.

Talks denied

The retailer also plans to close about 300 speciality shops and discard non-core assets, which range from coffee shops and health clubs to its logistics business.

The firm has said that 9,800 jobs could be affected although it stressed that the number of jobs lost would depend on negotiations with unions.

The retailer's shares, which have fallen sharply in recent weeks, unexpectedly rose late on Tuesday as reports emerged that US venture capital firm Blackstone may bid for the firm.

Karstadt told Reuters that it had not held any talks with Blackstone.

A German analyst said the firm's interests were too diverse and that it could struggle to sell its retail outlets given the sluggish state of the German retail sector.

"I do not know how Karstadt is going to manage against the will of the union," the analyst told Reuters.

"It seems to me that this group could be sold off in bits to different parties."