UPDATE 1-Schaeffler repeats aim for over 30 pct of Continental

(Adds quotes, background)

FRANKFURT, July 20 (Reuters) - The little known family business behind what may be Europe's biggest takeover this year vowed on Sunday not to settle for the 20 percent stake offered by its prey -- German tyre-to-brakes maker Continental AG.

German ball-bearings maker Schaeffler's out-of-the-blue $18 billion takeover bid for three-times-bigger Continental (CONG.DE: Quote, Profile, Research, Stock Buzz) could create an automotive supplier rival to world No. 2 Robert Bosch [ROBG.UL], also of Germany, if successful.

Taken completely by surprise by Schaeffler, which managed to circumvent rules requiring investors to flag stakes exceeding or falling below certain levels starting at 3 percent, Continental said it would welcome a Schaeffler holding of up to 20 percent.

Continental Chief Executive Manfred Wennemer -- no stranger to takeovers himself, having acquired high-tech electronics units to complement the formerly tyres-only business -- called in weekend newspaper interviews for Schaeffler to engage in talks to reach an amicable solution.

Schaeffler, in a statement on Sunday, welcomed Continental's readiness to negotiate but did not back down from its position.

"The objective pursued by Schaeffler to be a strategic major shareholder in Continental and to acquire for that purpose more than 30 percent of the shares remains unchanged," it said.

"This strategic participation is necessary to achieve a stable shareholder structure at Continental that will enable us to implement our targets and thereby secure our investment in the company for the longer term," Schaeffler said.

The statement did not say what those targets are.

NO BREAK-UP

Schaeffler said the 20 percent stake proposed by Wennemer would not be strategic but a pure financial investment which the family business could not justify,

Schaeffler reiterated its approach was not intended to lead to a break-up of Continental. The 69.37-euros-per-share offer was appropriate, Schaeffler said, adding it expected Continental shareholders to find it interesting.

Continental's share closed at 71.97 euros in Frankfurt on Friday -- valuing the group's equity at 11.5 billion euros ($18.3 billion) -- having traded between 64.10 and 75.55 euros since news of Schaeffler's approach broke a week ago.

Wennemer is expected to unveil his defence against Schaeffler at a meeting of Continental's supervisory board on Wednesday.

It remains unclear whether he has the support of board chairman Hubertus von Gruenberg who has worked with Schaeffler boss Juergen Geissinger. A Continental source told Reuters on Thursday that von Gruenberg saw little hope of the group defending itself successfully against Schaeffler.  Continued...