Continental Chief Executive Manfred Wennemer will have to play the German card to get key support from German unions to buy conglomerate Siemens' automotive electronics unit VDO.
A deal would transform the German car parts group, eclipsing its 1998 Teves purchase that helped turn the world's No. 4 tiremaker into a leading high-margin electronic brakes supplier.
All Wennemer has to do is persuade Peter Loescher, the new Siemens CEO, to abandon plans to float VDO and bury any thought of a sale to TRW Automotive Holdings and its owner, The Blackstone Group, for a reported 12 billion euros.
But first Wennemer may need to change his spots.
The Continental CEO became a target for union criticism when he closed a car tire plant at its German headquarters at the end of 2006 only six months after pushing through a deal to cut labor costs in exchange for a loose production guarantee.
Emphasizing his responsibility for all of the company's staff, Wennemmer has aggressively has built up low-cost production abroad. The German staff has fallen from 42% of the group payroll in 2002 to just 35% last year.
He now needs his erstwhile opponents, organized labor, to come to his aid at Siemens, betting on their distaste for private equity firms such as TRW owner Blackstone.
Continental has already played the national card by leaking fears that it may itself be a target of Blackstone's insatiable hunger, which could break it up and sell off the pieces.
"I still think that Siemens is going to sell it to Continental, while keeping a blocking minority of 25-30% from which it would then exit a few years down the line," said one equity analyst who declined to be named.
Christian Wullf, the premier in its home state of Lower Saxony, has also lobbied for an all-German deal, stoking a debate about whether Germany needs to promote key sectors by adopting an activist French-style industrial policy.
A source familiar with the situation says Wennemer is willing to pay around 11 billion euros ($15.19 billion) for VDO to forge a company with $23.5 billion in direct sales to the auto industry and enthrone it as the fifth-largest supplier in the world, according to Automotive News Europe data.
Binding offers are due on Friday, in time for the Siemens supervisory board to review them at a meeting on Wednesday.
Kleinfeld's Ghost
Siemens CEO Loescher finds himself in an unenviable position just weeks after taking on the post made vacant when a series of corruption allegations created management turmoil.
He is an Austrian who worked in the Anglo-American business world for General Electric (CNBC's parent company) and Merck and joined the 160-year-old German giant as a complete outsider.
German media ripped apart his predecessor, Klaus Kleinfeld, for getting a 30% pay hike after selling the Siemens Mobile unit to Taiwanese company BenQ, which pulled the plug on the business a year later, leaving thousands jobless.
Saddled with this legacy, Loescher's decision on the fate of VDO will send a strong message to Siemens' 161,100 German employees on whether he respects their corporate culture.
Siemens Chief Financial Officer Joe Kaeser and Chairman Gerhard Cromme have repeatedly called IPO plans for VDO the a preferred option, so it could be hard to convince Siemens labor leaders who control half of its board seats to back a sale to TRW and Blackstone without iron-clad job guarantees.
"It all depends on the offer," Siemens' deputy chairman and top labor representative, Ralf Heckmann, was quoted as saying by the Euro am Sonntag newspaper.
"If we get enough job security, we will approve a sale, even to a financial investor," he said, but added an IPO was still the preferred option for workers.
Even if were Blackstone to foot the bill for junk-rated TRW to acquire VDO -- thus more than doubling in size -- buyout firms are having an increasingly difficult time financing deals.
An estimated $87 billion in high-yield debt is coming onto the U.S. market by the end of the year amid an ongoing shakeout in the sub-prime mortgage sector.
"Siemens will decide not just in the interest of the shareholders but its employees as well, so the bidders will have to present a sustainable business model along with an offer price that is significantly better than the proceeds from an IPO," said HVB analyst Roland Pitz.
"In view of what happened at BenQ, I would imagine a German solution supported by the domestic auto industry as customers with a larger partner like Continental would be more realistic than a more complicated trans-Atlantic deal with a smaller partner like TRW that is backed by a private equity firm."