Schaeffler in talks to buy Continental: paper

FRANKFURT (Reuters) - Continental (CONG.DE: Quote, Profile, Research, Stock Buzz), 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: Quote, Profile, Research, Stock Buzz) 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.