VW agrees merger with Porsche

Volkswagen and Porsche are set to merge by 2011, after the mass carmaker said it will buy a 42 per cent stake in Porsche by the end of this year. It will pay €3.3bn, or £2.8bn, for the shareholding, which will be a prelude to a full merger within two years.

The merger will be aided by a Qatar sovereign fund buying a 17 per cent stake in Volkswagen and possibly some shares in Porsche. VW will also issue preference shares. Martin Winterkorn, the current Volkswagen chief executive, will become the head of the combined company and has been appointed head of Porsche in the wake of the departure of chief executive Wendelin Wiedeking.

Winterkorn said of the deal "Porsche is a real enrichment for our company's portfolio. We now have what it takes to become the automotive industry's number one." VW already owns brands like Audi, Skoda, Seat and luxury marques such as Bentley and Lamborghini.

The merger marks the end of Porsche's ambitions itself to take over VW and brings to an end a bizarre chain of events as it tried to raise the cash necessary. Its efforts resulted in a 51 per cent stake, but also debts of over €10bn, and it was forced to seek help from its takeover target. Its problems started when the credit crunch meant it could not find the funds to buy the remaining 24 per cent of VW it needed for a full takeover.

The deal values Porsche at €12.4bn and will create a company with 6.4m in annual vehicle sales.

WHAT THEY ARE SAYING:Stefan Bratzel, head of the German Automotive Research Institute, on Bloomberg.com: "This merger implies huge synergies. Together, Volkswagen and Porsche can carve up the world's car markets."

James Wilson in the FT: "The deal will see Ferdinand Piëch, chairman of VW and a big shareholder in both companies, fulfil a goal of reuniting the two companies. His grandfather, Ferdinand Porsche, designed the VW Beetle." ·