Stakes raised in German auto industry talks

By Anne Jolis and Christiaan Hetzner

BRUSSELS/FRANKFURT (Reuters) - RHJ International (RHJI.BR) declared its interest in Opel on Monday and Qatar looked to be moving closer to a $7 billion bailout of Porsche (PSHG_p.DE), raising the stakes in the battles for control of both German carmakers.

The German industry shake-up comes as carmakers the world over face a slump in demand, reduced cash flow and the prospect of further consolidation in an attempt to ride out the economic downturn.

RHJ stock fell 2.4 percent after the loss-making Belgian private equity firm said it was in "advanced talks" to buy a majority in General Motors' GMGMQ.PK Opel, while Porsche shares jumped nearly 9 percent on reports of a debt-quashing tie-up with Qatar.

The comments by RHJ, which had previously refused to confirm its interest in Opel, could mean Canadian auto parts supplier Magna (MGa.TO) has lost its much-vaunted lead in the last stages of the race to buy Opel, with a signing expected by the end of this month.

"We felt we've reached advanced stages of negotiations, and we feel it is now appropriate to confirm these talks," RHJ spokesman Arnaud Denis said, declining to give further details.

Recently, RHJ said it was eyeing financial sector investments and would have 438 million euros in cash to spend as of July 22, when its sale of a small stake in Egypt's Commercial International Bank (COMI.CA) is finalized.

RHJ, whose annual loss doubled last year to 1 billion euros, is reported to require only 3.8 billion euros in state aid as part of a deal for a majority stake in Opel, against an expected request of 4.5 billion euros from Magna.

Both would likely cut the same number of jobs, but labor leaders and local politicians, who enjoy a say in the deal, have so-far backed Magna due to its long-term industrial concept and its experience in the industry.

Fellow suitor China-based Beijing Automotive (BAIC), which submitted a bid for Opel earlier this month, has asked for only 2.64 billion euros in aid.

BAIC is hoping Opel's technology will help it close the gap with larger Shanghai-based rival SAIC Motors (600104.SS), which is enjoying success with partners like GM and Volkswagen (VOWG.DE).

Yet BAIC's lack of size and doubts over whether it was capable of running a western European carmaker meant its offer met with a "very cool" reception in Berlin, according to one source close to the talks, and it is unclear why RHJ's bid would be viewed any differently.

Italian carmaker Fiat (FIA.MI) has also expressed interest in Opel, and found approval within the German economics ministry, but the indebted Italian carmaker has been unwilling to invest any cash as part of the deal.

MAGNA STILL Favorite

Financial investors, such as RHJ, are generally met with suspicion in Germany, due to their reputation for piling debt onto companies and stripping assets, with private equity firms dubbed "locusts" by leading SPD politician Franz Muentefering in 2005.

As a result, RHJ has yet to receive much in the way of political or labor support. "Magna is still the best solution, the second best would be Fiat," Thuringia's Economy Minister Juergen Reinholz told Reuters.