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FRANKFURT, Sept 25 (Reuters) - German auto and defence supplier Rheinmetall and engineering group Voith are vying for transmissions maker Renk, which Volkswagen has put up for sale to free up funds for investment in electric vehicles, people close to the matter said.
The industrials groups are among those expected to submit first-round bids for Renk by a mid-October deadline, they said. The bids could give the company an enterprise value of around 700 million euros ($769.37 million).
Private equity groups KKR, Carlyle and Advent are also among the potential suitors, while defence firm KraussMaffeiWegmann's interest was expected to be muted, they said, adding that the signing of a deal is not expected before next year.
Voith, Rheinmetall and Carlyle declined to comment while the other potential bidders were not immediately available for comment.
Volkswagen declined to comment on specifics of the deal, saying it was working on a forward-looking solution for Renk in the wider context of developing a growth perspective for the group's mechanical engineering division.
Renk's vehicle transmissions unit - which makes transmissions used in tanks and other heavy vehicles - saw sales spike by 23% in the first six months. Its units making standard gears, and gears for ships as well its slide bearings unit saw business decline or stagnate, according to its financial report.
Volkswagen said that it was developing a growth perspective for the group's mechanical engineering business.
"In this context, we are working on a forward-looking solution for Renk," a company spokesman said, declining to comment on specifics of the deal.
Renk is benefiting among others from a large order by the British Army for Ajax branded tanks, which are being delivered until 2026.
"The military ops are top notch, the rest is more or less a restructuring case," one of the people said, adding that the German government was expected to scrutinise the deal to safeguard German defence technology from falling into the wrong hands.
Renk is 76%-owned by Volkswagen's family ownership holding Porsche SE, with the rest of the shares widely held. It currently has a market capitalisation of 721 million euros.
The company's large exposure to the defence industry - which it supplies with transmissions for tanks and gear units for navy ships - will make it hard for buyers headquartered outside NATO countries to acquire Renk, the sources said.
In 2018, Renk posted flat earnings before taxes of 62 million euros on slightly higher sales of 502 million euros, while orders surged 22% to 529 million.
While peers such as Rexnord, Timken, Allison and Mitsubishi Heavy trade at 6.5-8.5 times their expected earnings before interest, tax, depreciation and amortization, Renk could be valued at 8-9 times its expected core earnings, one of the people said.
$1 = 0.9098 euros Reporting by Arno Schuetze; Editing by Tassilo Hummel and Emelia Sithole-Matarise