VW acquires 42-per cent stake in Porsche for $4.7 billion

Germany's biggest car manufacturer, Volkswagen (VW) and the German sports carmaker, Porsche AG finally ended their 10-month on-again-off-again merger by agreeing on Thursday to merge by 2011 to create a European automotive giant.

The merger will boost Volkswagen's operating profit by some €700 million annually over the long term, VW said, which hopes to increase annual sales to around 6.4 million vehicles. 

Volkswagen will pay $4.7 billion to take a 42-per cent stake in the debt-ridden Porsche Automobil Holding SE's core sports-car arm, by the end of this year, which will culminate into a full merger of Porsche SE with VW in the course of 2011.

The deal values Porsche at €12.4 billion and the companies said the merger would create an integrated automotive group with 10 car brands and annual sales of around 6.4 million vehicles.

In an effort to pay for the deal and maintain its investment-grade credit rating, Volkswagen will fund the acquisition by selling €3.3 billion in preferred shares in the first half of 2010.

In order to lower its huge €10 billion debt, Porsche also plans to issue ordinary and preferred shares in the first half of 2011, which according to analysts, could be in the region of over €5 billion.