UPDATE 2-Gategroup to buy Lufthansa's catering business in Europe

Arno Schuetze and Klaus Lauer

(Adds confirmation by Lufthansa)

FRANKFURT, Nov 26 (Reuters) - Lufthansa said on Tuesday it is selling the European operations of its catering division LSG to Switzerland's Gategroup, part of the German carrier's plans to focus on its airline business.

Reuters had earlier reported that Gategroup was close to a deal to buy the European part of Lufthansa's LSG unit.

Lufthansa had put the business up for sale as it struggles with low margins in a competitive market, people close to the matter had said, adding that Lufthansa's supervisory board was expected to sign off on the deal on Dec. 3. There were no details on the price.

"The sale is part of Lufthansa's new strategy to focus on its airline business. Furthermore, the sale enables the new owner to further develop the catering business," Lufthansa said in a statement. It said the deal was subject to approval by the supervisory board as well as competition authorities.

Gategroup had no immediate comment.

Airline catering company Gategroup's offer topped that of industry rival Do&Co and the two had been the last remaining contenders in a long drawn out auction, sources familiar with the process said.

Do&Co was not available for comment.

Gategroup is owned by Singapore state fund Temasek and Asian investment firm RRJ Capital, who took over the company in several steps from Chinese conglomerate HNA. Gategroup operates the Gategourmet brand.

Earlier this year, Lufthansa's CEO Carsten Spohr said the airline's catering business was being challenged by the large number of locations it serves, high staff costs and exposure to currency exchange rates.

Union verdi had urged Lufthansa to scrap the sale or at least to make sure that jobs and employee rights were preserved in any deal.

The sale of LSG's European operations will be followed by an auction for its international business, which is expected to start in the first quarter, the sources added.

In its third quarter report, Lufthansa had said the formal sales process for LSG's European catering activities and the negotiation on a follow-on catering contract was progressing, with results expected year-end.

While details about the purchase price have not yet emerged, company sources had said in the past Lufthansa might receive just a small amount of money for LSG's European operations.

In its financial report, Lufthansa had said that assets held for sale worth 393 million euros and liabilities worth 639 million related to the planned disposal of its European catering activities.

In the first six months, Lufthansa's catering revenues increased by 4% to 1.6 billion euros, while earnings before interest and tax contracted by 18% to 33 million. (Reporting by Arno Schuetze and Klaus Lauer; editing by Thomas Seythal/Alexandra Hudson/Jane Merriman)