The company put the unit up for sale late last year as it sheds non-core assets to reduce complexity across a group built through a series of large acquisitions. It has already sold its aerospace unit and external IT operations as well as a large real estate portfolio.

French-German tank maker KNDS, which evolved from the merger of Nexter and Krauss-Maffei Wegmann, is expected to hand in an offer for RTD by a July 24 deadline, as is Belgian group CMI, the sources told Reuters.

Private equity groups which initially expressed interest in RTD are not expected to take part in the auction, which is organized by Rothschild, they added.

The French government favors an industrial buyer rather than a financial investor, a source close to the defense ministry told Reuters last month.

Volvo, KNDS and Rothschild declined to comment.

A CMI spokesman said the company is interested in RTD.

"Eighty percent of our group is owned by Bernard Sarin, a French businessman, and we have many French subsidiaries. We are a Belgo-French group that would integrate another French company and we would have synergies between Belgium and France. We are talking about more and more cooperation between the French and Belgian armies," he said.

Volvo may reap less than initially expected from the sale of RTD after a slump in recent trading, people familiar with the matter said.

RTD recently adjusted its business plan and now expects less than 80 million euros in 2018 earnings before interest, tax, depreciation and amortization, one of them said.

"Earnings are less important than the order backlog," another of them said, adding he would expect the group to sell for about 7 times its estimated core earnings.

(Reporting by Arno Schuetze; Additional reporting by Robert-Jan Bartunek, Cyril Altmeyer, Niklas Pollard; Editing by Maria Sheahan)