* Schaeffler could try to torpedo plan - sources
* Share issue via in-kind contribution an option - sources
* Continental shares rise 3.5 percent, lag car sector peers (Adds quotes and background)
HANOVER, Germany, Aug 3 (Reuters) - A share issue at German automotive supplier Continental AG is not in the bag despite a decision by its supervisory board last week to start preparing an issue for up to 1.5 billion euros ($2.14 billion), several sources close to the situation told Reuters.
"It is not yet final whether, when and in which form it will happen," one of the sources said.
Continental said last week it was preparing a share capital increase that would draw on its authorised capital to bolster a balance sheet stretched by 10 billion euros in debt.
It was also seeking to discuss with its banks refinancing a 3.5 billion euro tranche of debt due in August 2010.
"The decision to prepare a capital increase does not mean that it will take place. You can still call it off if you see it does not make any sense," another person close to the matter said.
The share capital increase plan is the latest bone of contention between Continental and its controlling shareholder, Schaeffler.
At a tumultuous board meeting on Friday Continental Chief Executive Karl-Thomas Neumann pushed through the plan to ready the share capital increase. He beat back an attempt by Schaeffler to oust him but faces another leadership test on Aug. 12.
Analysts say Schaeffler, laden with 11 billion euros in debt, cannot afford to buy more Continental shares. Shunning an issue of new stock could dilute its stake to below the 75 percent needed to dominate Continental and get access to its cash flows.
Schaeffler is counting instead on a recovery in depressed global automotive markets to boost profits and pay down debt. The sources said the market environment had to support any issue of new shares and that the deal could include bringing in parts of Schaeffler as an in-kind contribution.
Schaeffler and Continental declined comment.
The sources said Schaeffler was pushing to create a new corporate structure in which it and Continental would operate as separate entities under a holding company. Tax and valuation issues would make a quick integration of the two nearly impossible, they added.
The head of the IG Metall metalworkers union in the southern state of Bavaria said Continental was preparing to close one of its five electronics plants in Germany if labour did not offer big concessions, but a company spokeswoman said there were no such plans. (Reporting by Arno Schuetze, Patricia Uhlig and Philipp Halstrick; Writing by Michael Shields; Editing by Rupert Winchester) ((Arno.Schuetze@thomsonreuters.com; +49 511 1237444; Reuters Messaging: Arno.Schuetze.reuters.com@reuters.net)) ($1=.7019 Euro)