Volkswagen considers options for transmissions maker Renk - sources

(Adds potential bidders, background)

By Arno Schuetze and Edward Taylor

FRANKFURT, July 17 (Reuters) - Volkswagen is considering options for majority-owned transmissions maker Renk , as the German carmaker streamlines operations to help fund an overhaul following its emissions scandal, people close to the matter said.

Volkswagen (VW) is working with Citi to decide on the future of Renk, which may result in a sale of the maker of transmissions and bearings used in ships to wind turbines, the sources said.

If a formal decision to sell Renk is taken, an auction could be kicked off as early as this autumn and the company could be valued at 600-800 million euros ($687-$916 million), they added.

VW and Citi declined to comment.

VW is reining in spending, including cutting thousands of jobs at its core passenger-car brand, to help pay for a multibillion-euro shift to embrace electric cars and new mobility services.

It has already launched a sale of motorcycle brand Ducati.

Renk is 76 percent owned by VW unit MAN and had 390 million euros in equity and 214 million in cash, according to its 2016 annual report.

Last year, Renk posted profit before taxes of 65 million euros and earnings before interest, tax, depreciation and amortisation of about 80 million euros on sales of 496 million.

Bidders are expected to value the business at about 8-9 times its expected core earnings, a slight discount to peers such as Timken, Rexnord and Allison Transmission , which trade at 9-10 times.

"Renk may be worth 10 times. But a buyer will need to offer minority shareholders a small premium. That could mean that Volkswagen will get slightly less for its stake," one of the people said.

Renk is expected to attract interest from private equity groups such as KKR, CVC, Cinven, Carlyle and Advent, the sources said.

Separately, some Renk peers are expected to look at the asset. However, Renk's exposure to the defence industry will make it hard for non-NATO buyers to acquire Renk, the sources said.

"Japanese groups such as Sumitomo Heavy, Kawasaki or Mitsubishi may take a look. But U.S. groups like Rexnord or Timken who would mainly be interested in the non-defence related products are unlikely buyers," another person close to the matter said.

Renk, founded in 1873, currently employs 2,200 staff. VW has said repeatedly in the past that it wanted to keep the business.

($1 = 0.8734 euros) (Additional reporting by Jan Schwartz; Editing by Mark Potter)