FRANKFURT, Dec 19 (Reuters) - Volkswagen has attracted bids from Europe's Innio, Japan's Mitsubishi Heavy and U.S.-based Cummins for its MAN Energy Solutions, which makes diesel engines for ships and power generators, people close to the matter said.
Innio, formerly known as Jenbacher and owned by buyout group Advent, as well as the two other bidders last week made bids for the VW unit, which could have a valuation of 1.5-2 billion euros ($1.7-$2.2 billion) in a potential sale, they said.
Other bidders such as Hyundai Heavy are no longer in the running, they added.
The divestment is part of Volkswagen's efforts to slim down and simplify the group which has 12 brands, trucks, buses, motorbikes, cars and electric bicycles as part of its business.
While the car maker is not running a formal auction process it is expected that the bidders may be asked to submit final offers at the end of February, the sources said.
Volkswagen, which has offered to retain a significant minority in the business, declined to comment. The bidders declined to comment or had no immediate comment.
The business, formerly known as MAN Diesel & Turbo, also makes turbochargers used in the oil & gas industry and in 2018 reported operating earnings of 133 million euros on sales of 3.1 billion euros.
This year, MAN Energy Solutions is expected to post roughly 200 million euros in earnings before interest, tax, depreciation and amortization, one of the people said.
Cummins trades at 7.7 times its expected core earnings, while Caterpillar trades at 9.3 times and Wartsila trades at 9.8 times.
"MAN Energy Solution's value has been in decline following years of years of underinvestment," one of the sources said, adding the industry's margins have come under pressure as demand from power plants has waned with the switch to more renewable energy sources.
Peers often specialise in just part of the unit's product range which includes 2-stroke engines, 4-stroke engines and turbochargers, limiting interest, the sources added.
Volkswagen has struggled to slim down in the past after the company's works council, which has veto powers over major restructuring, blocked efforts to sell motorbike brand Ducati.
MAN Energy Solutions was originally a part of VW's trucks brand MAN, but some of MAN's assets were transferred to Volkswagen last year as part of efforts to streamline Traton ahead of the unit's listing.
$1 = 0.8996 euros Reporting by Arno Schuetze; editing by David Evans