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German department store chain Karstadt Friday reached a deal with real-estate group Highstreet and investor Nicolas Berggruen that saves the group from insolvency.

The iconic German retailer, a former unit of bankrupt Arcandor, which employs more than 25,000 staff around Germany, also risked liquidation if Berggruen and Karstadt's creditors had failed to reach an agreement before a Friday deadline set by its insolvency administrator.

The negotiations have centered on reductions to Karstadt property rents and plans to reorganize Karstadt into separate units including sport and premium stores. Bergruen has said he won't spin off any unit before 2012.

Highstreet, headed by Goldman Sachs Group (GS), owns 86 of the 120 Karstadt shops.

With the settlement, the district court of Essen, where Karstadt is headquartered, can approve the sale, for EUR1, of Karstadt to Berggruen from insolvency administrator Klaus Hubert Goerg.

Berggruen has committed to inject EUR70 million to keep the department store chain running. The Essen district court's final approval is expected at 1200 GMT Friday.

Since June, Highstreet has haggled over the terms of Berggruen's deal with Karstadt creditors such as Germany's Valovis Bank.

-By Archibald Preuschat, Dow Jones Newswires; +49 211 13872 18; archibald.preuschat@dowjones.com