Schaeffler in talks to buy Continental: paper

FRANKFURT (Reuters) - Continental (CONG.DE), the world's fourth-largest tire maker, is in talks with a smaller German engineering company Schaeffler about a takeover offer that values Conti at more than 10 billion euros ($15.8 billion), a German newspaper reported on Sunday.

The Frankfurter Allgemeine Zeitung, citing "various sources", said Schaeffler would also take on Continental's 11 billion euros of debt, and that it already had funding in place from banks.

The FAZ report, a preview of an article for its Monday edition, builds on an article in Saturday's Financial Times which also said that Schaeffler was preparing to bid more than 10 billion euros for Continental, and that the Royal Bank of Scotland (RBS.L) was helping with the funding.

Such a bid would offer at least a 15 percent premium over Continental's Friday closing share price, and if successful would be Europe's biggest deal this year.

Spokesmen for Schaeffler and Continental declined to confirm or deny either report to Reuters.

"As a matter of principle, we do not comment on market rumors," Schaeffler spokesman Detlef Sieverdingbeck said.

Continental's share price has fallen around 50 percent since its peak in July last year, and the company was worth 8.7 billion euros based on Friday's closing share price of 53.96 euros a share. It took over Siemens's auto electronics unit VDO in December.

AIMS FOR FRIENDLY DEAL

The FAZ said Schaeffler, which is family-owned, would delist Continental from the German stock exchange if its bid is successful, as it did after its hostile takeover of German auto parts firm FAG Kugelfischer in 2001.

"The goal is a transaction which is supported by Continental's management. If that does not succeed, Schaeffler won't shrink from a so-called hostile takeover," the FAZ wrote.

"According to the FAZ's information, concrete takeover negotiations have been conducted over the weekend. Schaeffler has been planning this for weeks, though," the paper said.

On Saturday, the Financial Times wrote that Schaeffler and Continental had been in contact on Friday.

"The company was looking to engage with Continental as late as yesterday afternoon, but was prepared to go hostile if its overtures were rejected. RBS is leading the financing, according to people with knowledge of the deal," the British paper said.

A Continental spokesman, declining to comment on either report, played down the prospects of a successful takeover.

"We're not worried about investors who support the long-term strategy of the business and don't want to break up Conti. We wish anyone interested in a hostile takeover lots of luck -- they'll need it," he said.

In 2007, Continental had just under 152,000 staff and revenue of 16.6 billion euros, which rises to 26.4 billion if the costly takeover of VDO is included.

Schaeffler, which makes ball bearings among other things, employed 66,000 staff last year and had turnover of 8.9 billion euros.

(Reporting by Jan Schwartz and Joern Poltz; Writing by David Milliken; Editing by Quentin Bryar)