Parts maker Continental AG has rejected a takeover offer from ball bearing specialist Shaefller Group saying the "opportunistic approach" does not reflect its full value and there is no convincing case to combine the businesses.

It also claimed Schaeffler was trying to achieve control in an unlawful manner and that Continental is strongly positioned in its current form for the future.

Schaeffler on Tuesday offered EUR69.37 per share in cash, valuing Continental at EUR11.3bn ($US18bn). News agency reports said family-owned Schaeffler had initially said it was not necessarily after majority control. The share price, which has risen strongly since Friday, was EUR73.24 early on Wednesday.

The German family-owned firm already controls about 37% of Continental's shares. It currently holds 2.97% and is entitled via financial instruments to acquire a further 4.95%. It also has agreed to swap transactions regarding about 28% of shares, according to Thomson Financial.

"The Schaeffler Group takes advantage of the current challenging equity market environment to acquire control over a strongly positioned technology company and to avoid paying an appropriate premium to the other shareholders of Continental," the takeover target said in its statement.

"According to our analysis, the Schaeffler Group has secured access to 36% of the outstanding capital of Continental in an unlawful manner - with the help of derivative positions and collaborating banks. This would result in a comfortable voting majority at the shareholders meeting and may even lead to a qualified voting majority.

"The public statements, that the Schaeffler Group only aims to achieve a minority position and intends to leave the sound structure of Continental unchanged, are doubtful in light of the recent talks. The [executive board] therefore views the approach of the Schaeffler group as not in the interest of the company and its shareholders."

Continental said the board would support a financial investment of 20% but claimed Schaeffler insisted on a controlling stake of more than 30%. It added that Schaeffler would benefit from Continental, but not vice-versa.

"Continental has an outstanding potential as a stand-alone company in its current form," it asserted.

Agence-France Presse (AFP) noted that Continental is the fifth-biggest vehicle parts maker in the world excluding tyres, and its 2008 sales forecast is almost three times the figure posted by Schaeffler last year.

The German stock market watchdog could oblige the group to raise its offer, the report added.

AFP said Schaeffler had tried to present its offer in friendly terms, promising not to break up Continental, supporting its strategy and retaining it as a listed, stand-alone company with no job losses.

Citing Merrill Lynch analysis, AFP said Continental had a heavy debt load following its own purchase of rival VDO for more than EUR11bn  and has also been hit by rising materials costs.

Schaeffler's three brands are INA, LuK and FAG.

Continental has targeted sales of about EUR26.4bn in 2008. It employs around 150,000 staff at 200 locations in 36 countries.