updated 12/28/2005 8:42:44 AM ET 2005-12-28T13:42:44

Automaker DaimlerChrysler AG said Wednesday it is selling diesel-engine maker MTU Friedrichshafen GmbH to financial investor EQT as part of a drive to focus on its core vehicles business.

DaimlerChrysler said the two sides valued the unit at $1.9 billion, and added that it expected a cash inflow of some $1.2 billion from the sale. It forecast a $355 million boost to net profit.

In addition to MTU Friedrichshafen, the sale includes the off-highway activities of Detroit Diesel Corporation.

A sale of the unit had been widely expected. DaimlerChrysler bought out the minority shareholders of MTU Friedrichshafen in September and later said it was in talks with several potential buyers.

The German-U.S. automaker is selling off activities beyond its core automotive business and its holding in European aerospace group EADS.

"With the sale to EQT, we are putting MTU Friedrichshafen on the right track for continued expansion," DaimlerChrysler board member Ruediger Grube, who is also the chairman of the diesel engine maker's supervisory board, said in a statement. "As the prices under discussion with the three bidders were very similar, we decided in favor of the bidder with the most convincing concept."

MTU Friedrichshafen, based in the southwestern German town of Friedrichshafen, builds engines for trains, ships, military vehicles and construction machinery. It had nearly 6,700 employees at the end of last year _ some 5,850 of them in Germany.

The deal requires approval from antitrust authorities and the German government, which has the power to block the transfer of defense knowledge or technology abroad. Economy Ministry spokeswoman Sabine Maass said its examination was under way.

DaimlerChrysler said the deal should close in the first quarter of 2006.

EQT says it manages approximately $7.1 billion in eight funds and has invested in about 40 companies.

It concentrates on acquiring and developing mid-sized firms in northern Europe. EQT Partners, the investment adviser to the funds, has offices in Stockholm, Sweden; Munich and Frankfurt, Germany; Copenhagen, Denmark; and Helsinki, Finland.

"We are committed to back MTU in their growth strategy," said Marcus Brennecke, managing partner of EQT Germany's operation. "We are very much looking forward to working together with management and employees to develop the company's potential."

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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