* Insolvency filing ends long battle for survival
* Merkel says insolvency unavoidable
* Control over travel group Thomas Cook up for grabs
* Arcandor shares close down nearly 50 pct (Adds Metro CEO comment in paragraphs 20-21)
By Eva Kuehnen and Markus Wacket
FRANKFURT/BERLIN, June 9 One of Germany's biggest retailers, Arcandor (AROG.DE), threw in the towel on Tuesday, filing for insolvency after the government rejected its pleas for emergency state aid.
The collapse makes Arcandor, which controls Europe's second-biggest travel company, Thomas Cook (TCG.L), Germany's biggest non-bank casualty of the financial crisis and underlines Berlin's determination to cap its help for industry.
Chief Executive Karl-Gerhard Eick had been battling for weeks to secure help from Berlin after global recession compounded the retailer's problems as customers turned their backs on its dowdy stores in favour of discounters.
Eick had been one of many executives knocking on Berlin's door for help, alongside carmakers Opel and Porsche (PSHG_p.DE) as the crisis takes its toll on German industry.
But Chancellor Angela Merkel, who last month waved through a rescue of Opel, drew the line at Arcandor, saying its owners had not pitched in enough money to mount a joint rescue for the group. Around 43,000 staff in Germany are affected.
The decision to reject Arcandor's requests for aid represents a calculated gamble on the part of Merkel and her "grand coalition" government ahead of a Sept. 27 election.
She may have been emboldened to take a tough stance on Arcandor by criticism of the Opel rescue within her conservative camp, including by her own economy minister, Karl-Theodor zu Guttenberg. [ID:nL91037276]
Polls also showed that about two-thirds of Germans opposed state aid for Arcandor, whose financial problems were aggravated by the recent downturn but clearly pre-dated the current crisis.
Merkel said Arcandor's insolvency opened the door to carve up and sell parts of the group.
"I think that the company now has a chance, particularly where jobs are concerned, and possibly in conjunction with others like Metro," Merkel said. [ID:nBAT003019]
Arcandor shares were temporarily suspended and ended the trading day down 48 percent at 0.55 euros.
WINNERS AND LOSERS
Arcandor's roots go back to Gustav Schickedanz, who built a fortune with mail-order during the German postwar "economic miracle."
But the company, which some estimate has spent more than 3 billion euros ($4.16 billion) restructuring in recent years, has burned through the family fortune with a string of unsuccessful attempts to turn it around.
Arcandor's Karstadt department stores are a prominent feature on Germany's high streets. [ID:nL9607235]
"The employees of course feel like they've been cheated," said Rainer Hopf, 53, who has worked at Karstadt for nearly 20 years.
"They have put up with so much, a bunch of management changes in the past years, but not once did someone come along with a sustainable concept," he said.
A question mark now hangs over the future of Thomas Cook, in which Arcandor holds some 53 percent. Its stake has been given to banks as security for some of its loans.
Banking sources said a sale within three to 12 months was realistic.
Rewe, Germany's third-biggest tour operator, reaffirmed its interest in Thomas Cook, helping to send Thomas Cook shares up more than 10 percent by the close of trade. [ID:nL9729101]
Rival Metro (MEOG.DE) on Tuesday repeated it was interested in taking over half of Arcandor's nearly 120 high street stores, a step that its CEO, Eckhard Cordes, said was not expected to raise antitrust issues.
"We will pay a fair price for the 60 stores," Cordes told German ZDF television, adding that it may be possible to float the new company on the stock market eventually.
A senior German official who requested anonymity told Reuters that several foreign and domestic investors have expressed interest in Arcandor's mail-order business, Primondo, which includes the Quelle operations.
The world's biggest mail-order group, Germany's Otto, has said it might buy parts of Primondo. [ID:nL0691652] (Additional reporting by Madeline Chambers and Sarah Marsh in Berlin; by Nicola Leske, Christoph Steitz and Philipp Halstrick in Frankfurt; and Nikola Rotscheroth in Duesseldorf; editing by Elaine Hardcastle and Steve Orlofsky)