(corrects second paragraph to refer to Thomas Cook as a 'travel firm' not a 'retailer')
* To ditch loss-making stores in $1.2 bln restructuring
* In talks with main shareholders over capital hike
* Sets 6-7 percent margin target for core retail ops
* Arcandor, Thomas Cook shares drop sharply
(Adds details, analyst comment, updates share prices)
By Eva Kuehnen
FRANKFURT, April 20 (Reuters) - Debt-laden German retailer Arcandor called for a further 900 million euros ($1.2 billion) to fund a five-year turnaround plan that will see it move downmarket and hive off loss-making businesses.
The group, which is haemorrhaging money but remains determined to hang on to its cash cow, travel firm Thomas Cook, said on Monday it planned to close, spin off or restructure its premium department stores.
The revamp marks a clear break by new Chief Executive Karl-Gerhard Eick from predecessor Thomas Middelhoff, who had declared the premium business a pillar of department stores unit Karstadt's strategy.
As the company's shares fell sharply, one analyst said he was shocked by the move -- which Eick suggested could be part-funded by issuing new shares -- while another said finding a buyer for the premium group could prove tricky and a third questioned where the fresh cash would come from.
"An extra billion funding ... (is) quite a substantial ask for anyone who's going to provide finance for what ...is not a guaranteed success by any ...stretch of the imagination," said Bryan Roberts, global research director at Planet Retail.
Arcandor said it now sees Germany's mass market as its target audience.
"The further development of the premium business is clearly limited in Germany," said Stefan Herzberg, head of Karstadt.
"We have to set the course for a sustainable positive cash flow," Eick -- who left Deutsche Telekom to run Arcandor from last month -- told journalists in a conference call.
Arcandor aims to separate the group's profitable units from its loss-making operations over the next five years.
"This is crucial for further negotiations with banks," Eick said. Arcandor's net debt stood at 1.4 billion euros at the end of last year and credit lines of up to 776 million euros come up for renegotiation by mid-June.
The move amounts to "selling the last silverware," Ruland Research analyst Heino Ruland said in a note.
Daniel Lucht, senior analyst at Verdict Research, said: "I'm quite shocked because only four years ago they tried to turn it round and now suddenly they say they need another 900 million euros."
Arcandor shares, which have fallen more than 40 percent so far this year, were down 7.2 percent at 1.67 euros by 1347 GMT, valuing the company's share capital at 456 million euros and underperforming a 5 percent drop in Germany's mid-cap index. Thomas Cook shares were down 11 percent at 254 pence as Arcandor's news dented bid speculation linked to the stock.
WEDDED TO THOMAS COOK
"We are confident that we will be able to secure the long-term financing of the group on this basis with the banks, shareholders, employees and all other stakeholders. With this confidence we have begun talks on refinancing the group with all partners," Eick said, adding he was also looking into state aid.
Arcandor could borrow up to 300 million euros from the German government's support fund.
Eick told a news conference he was also in talks with major shareholders private bank Sal. Oppenheim and Quelle mail-order company heiress Madeleine Schickedanz about possibly raising fresh equity, but did not give any details of size or timing.
Selling Thomas Cook, which is the company's main earnings driver, was not an option.
"Thomas Cook is, and remains, Arcandor's core business," Arcandor said after it came under pressure from its banks last year to exit the travel company, Europe's second-largest after TUI Travel.
Arcandor will group non-core businesses in a separate unit, called Atrys, which will aim to erase an annual cash drain of about 300 million euros "as quickly as possible" via disposals, alliances, management buyouts, restructuring or even closures.
Eight standard Karstadt branches and the three Karstadt premium department stores will move to the new unit, as well as the brick-and-mortar operations of its Quelle business.
Such measures could lead to job cuts, Arcandor said without giving further details.
"According to current figures, the core businesses of Primondo and Karstadt together show a positive cash flow from Day 1," Eick said. He set the mid-term core margin target for mail-order unit Primondo at 7 percent and for the department store unit Karstadt at 6 percent.
Thomas Cook has an operating margin target of 4.8 percent, which Eick said "is set to increase".
"The open issue is who and at what price could be willing to buy Arcandor's premium group in the middle of this current economic crisis, especially in the luxury segment," UniCredit analyst Volker Bosse said.
By centralising group purchasing Arcandor aims for synergies of up to 350 million euros -- 5 percent of its annual purchasing volume -- within two to three years, Arcandor said. (Additional reporting by Mark Potter in London; Editing by John Stonestreet)