FRANKFURT, May 19 (Reuters) - Metro, the world's fourth-largest retailer, has told local state officials of its plans to merge its Kaufhof stores with Arcandor's Karstadt chain, sources familiar with the matter told Reuters.
Metro Chief Executive Eckhard Cordes met Juergen Ruettgers, the state prime minister of Germany's North Rhine-Westphalia, on Monday to inform him about the proposal to combine Metro's Kaufhof department stores with imperilled rival Karstadt, the sources said on Tuesday.
Cordes was also due to meet federal government officials this week, sources have told Reuters.
Metro declined to comment.
The combination could spark further consolidation in Germany's department store sector, where profitability has been declining for years as consumers changed shopping habits.
Arcandor, which is trying to set up long-term financing for the group, plans to ask the German government for 650 million euros ($880.9 million) in state loan guarantees as well as a loan from the state development bank KfW later this week.
But a senior lawmaker in Chancellor Angela Merkel's conservative party told Germany's Handelsblatt on Tuesday that he did not yet see how Arcandor could qualify for state aid.
"The government won't be able to award guarantees or loans to every company," Volker Kauder told the newspaper. "Only those (companies) that have got into temporary payment difficulties due to the financial crisis and which otherwise have a sustainable business model can receive state money."
Arcandor Chief Executive Karl-Gerhard Eick told the Sueddeutsche Zeitung paper he opposed Metro's move, which he said was ill-timed and a tactical attempt to thwart its efforts to obtain state aid.
"Presenting a private solution and thereby preventing guarantees -- that cannot happen," Eick told the paper.
Arcandor shares were down 3.1 percent at 2.20 euros by 0926 GMT, underperforming a 2.4 percent gain in Germany's mid-cap index (Reporting by Eva Kuehnen and Matthias Inverardi in Duesseldorf, editing by Will Waterman)