* Koerfer seen as violating neutrality principle -sources
* Independent board member backs CEO dismissal -paper
* Schroeder probing s/holder Schaeffler's actions
By Arno Schuetze and Edward Taylor
HANOVER/FRANKFURT, Aug 10 (Reuters) - Continental AG Chairman Rolf Koerfer may resign from the supervisory board under a deal with controlling shareholder Schaeffler that would likely also claim Chief Executive Karl-Thomas Neumann.
Several sources familiar with the matter told Reuters on Monday that Schaeffler CEO Juergen Geissinger hoped the compromise would win over the 10-strong labour faction on the board, which has opposed a plan by the 10 shareholder representatives to oust Neumann.
The shareholder faction, led by five Schaeffler appointees, was expected to vote for Neumann's dismissal at a board meeting on Wednesday.
In the event of a tie between the labour and shareholder representatives -- something industry watchers are reckoning with -- Koerfer would hold the casting vote, which he would have to exercise before offering his own resignation.
Both companies declined to comment.
Another battle for supremacy in Germany's automotive sector, pitting Porsche against Volkswagen, ended last month in the sportscar maker's defeat and its Chairman Wolfgang Porsche fighting back tears on national television.
'UNITED VIEW'
Continental board member Hans-Olaf Henkel, who strongly supports Schaeffler's efforts to replace Neumann with its own man, said he expected all nine of his fellow shareholder representatives to vote likewise.
"I don't know of anyone who wouldn't confirm his (anti-Neumann) view once again," he said in an interview with Frankfurter Allgemeine Zeitung published on Monday.
Henkel praised the head of Schaeffler's auto parts division, Elmar Degenhart, who is Geissinger's candidate for the post of CEO at Continental.
"Degenhart would be better prepared for this job when he starts (than other incumbents Hubertus von Gruenberg, Manfred Wennemer and Neumann)," Henkel said.
Sources familiar with the matter told Reuters some shareholder representatives not affiliated with Schaeffler were unhappy with the ouster, though they saw little choice but to vote against Neumann since Schaeffler controls 90 percent of Continental's shares.
BREACH OF DEAL?
Schaeffler, a family-owned bearings maker one-third the size of Continental, launched a takeover bid for its larger rival that was financed by billions in debt just prior to the collapse of Lehman Brothers.
An investor agreement that is valid until at least 2014 was struck to resolve hostilities between the two, under which the then Continental CEO Manfred Wennemer resigned.
The agreement also saw former German chancellor Gerhard Schroeder appointed as an ombudsman to ensure guarantees that Schaeffler would support the ongoing strategy of Continental's management.
Among other conditions, the agreement forbids any attempt to force Continental against its wishes to change its form of incorporation, sell any material assets or divisions, further leverage its balance sheet or alter its stock exchange listing.
The Continental board's labour faction has accused Koerfer of failing to adhere to the agreement's principles of neutrality.
Should Schaeffler succeed in supplanting Neumann's team with its own management, however, the investor agreement would become effectively worthless.
Schroeder has consequently started a probe into the conduct of the controlling shareholder, but sources say he may back away from any efforts to retain Neumann, since the CEO's relationship with Schaeffler has been poisoned.
Business daily Handelsblatt reported on Monday that attempts to dismiss Neumann had met with some resistance, however.
Without first clarifying whether Schaeffler broke the investor agreement, "a vote over Chief Executive Neumann is unthinkable," a Continental supervisory board member told Handelsblatt.
In German weekly Der Spiegel, former CEO Wennemer urged supervisory board members to back Neumann and asked for a new "independent (and) competent" supervisory board chairman to be appointed to avoid a conflict of interest.
He added that the terms of the investor agreement are being "massively breached" at the very least "in spirit".
(Additional reporting by Christiaan Hetzner; editing by John Stonestreet)