Karstadt's head, Karl-Gerhard Eick dismissed the merger proposal as a politically-motivated "tactical maneuver" from its competitor Metro, which owns Kaufhof. Eick was responding to recent comments from Metro's CEO Eckhard Cordes, who publicly indicated that his company would be willing to support the struggling department store.

Old-fashioned department stores have suffered from weak sales in Germany as consumers flock to hypermarkets - which combine supermarkets with department stores - and shops run by retail clothing brands. A merger between the 247 Kaufhof and Karstadt department stores nationwide, would leave just one department store chain in Germany.

Although Eick dismissed a merger in a newspaper interview Tuesday, he did not downplay the seriousness of his company's financial situation.

Eick is the head of Arcandor, which runs not only the Karstadt department store chain, but also the Quelle mail order business and the Thomas Cook travel company. Last week, Arcandor said it would ask for a 650-million-euro ($880 million) in government-backed loan guarantees to help the company restructure and avoid bankruptcy.

"When we don't get the state guarantees, Arcandor would face insolvency. That is the unavoidable alternative," Eick told the Sueddeutsche Zeitung.

th/dpa/AP/AFP

Editor: Nick Amies