Continental talks to white knight bidders: sources

By Arno Schuetze and Philipp Halstrick

HANOVER/FRANKFURT (Reuters) - Germany's embattled Continental, (CONG.DE) whose management is fending off a hostile takeover, is in talks with alternative buyers about a friendly bid, sources with knowledge of the matter said on Monday.

Last week, German ball-bearing maker Schaeffler launched a hostile $18 billion bid for the tire-to-brakes firm. If the family-owned predator catches its prey it would be the biggest takeover so far this year in Europe.

But its advances have provoked a fight between Schaeffler, owned by billionaire Maria-Elisabeth Schaeffler ID:nL15284836, and Continental Chief Executive Manfred Wennemer.

Wennemer is now looking for an alternative offer from a friendly bidder or so-called white knight. On Monday, two sources with direct knowledge of the matter said Continental was in talks with a "handful" of trade buyers and private equity investors.

The investors, they said, could win a stake in the company through a capital increase, buying shares on the market or making a rival bid for the company. They could also club together to increase their clout.

Continental declined to comment.

Seeking to boost its team of advisers, as it considers its defense options, Continental has asked banks including Citigroup (C.N) and HSBC (HSBA.L) to help it, sources familiar with the matter said on Monday.

The move would add the two banks, both of which have the ability to lend their client cash from their balance sheets, to existing adviser Goldman Sachs (GS.N), known for its defensive advisory work. This could open new options for Conti including buying a rival.

Weighed down by an 11 billion euro debt pile accumulated to pay for its purchase of VDO, which makes the technology inside fuel injection systems, Continental now faces a slowdown in car buying as high oil prices bite.

Under the terms of the Schaeffler offer, the combined group would be lumbered with a debt mountain three times as large.

Although its single biggest profit maker is its tires business, Continental is also strong in electronics like satellite navigation.

Schaeffler says a marriage between the two would set the stage for Germany to build the automobile of the future. Wennemer says there is little benefit from a union.

If Schaeffler succeeds in buying the group, which is three times its size, it would be the first time a German family business has taken over a company listed on the country's blue-chip DAX index.

(Writing by John O'Donnell; Editing by Paul Bolding)