Kanwar's offer comes at a crucial juncture as Continental, it is learnt, is keen on buying out the entire chunk of financial institutions' 44 per cent holding in Modi Rubber.

As all factions of the Modi family together hold only around 20 per cent in the company, the sale of the FIs' stake - the single-largest shareholder block - could lead to a change in management as well. Continental, the world's fourth-largest tyre company, has been contemplating an entry into India for the last four years now, and had announced separate joint ventures with all its three technical partners in India - Apollo, Modi Rubber and JK Tyres - all of which were eventually scrapped.

While the Singhanias of JK are out of the race to partner the German major, a strategic tie-up withContinental is crucial for Apollo to stave off the increasing competition from multinationals like Bridgestone and Goodyear. Others, like Michelin, Pirelli and Kumho, who are yet to formally enter India, have made their presence felt through imports.

Sources familiar with the negotiation process said, "Kanwar would like to have Continental as a partner rather than a rival at this stage. Hence, the reason for offering a strategic stake in Apollo Tyres." While Kanwar holds over 25 per cent in Apollo, the FIs have a 23 per cent stake.

A strategic partnership with Apollo can only be hands-off for Continental, as management control will lie with Kanwar. The German transnational, which recently appointed its nominee on the Apollo board at Kanwar's behest, is clearly biding time to finalise its India strategy.

Industry sources point out that control over Modi Rubber will allow Continental to start its India run with an established company, both in terms of brand equity as well as distribution network. As forthe Modis, over the last two years they have not been able to arrive at a price at which to buy out the FIs.

Industry sources point out that the BK-VK Modi group is probably not in the sort of financial health to dole out such a large amount of fund at this stage. Funds inflow is also essential to Apollo as it plans to set up a steel radial tyre unit at an investment of close to Rs 400 crore, in view of the increasing demand of radial tyres in the country.

Apollo Tyres is at present going through a phase of change and plans to rationalise its product mix with focus on high-technology products and greater value addition to its brands. Other stated priorities of the company will be in production of high-end truck radials where Continental's help will come in handy. The company already has a radial facility and recently enhanced its cross-ply truck tyre capacity.