From the Financial Times:

Quote:

Porsche, the world's most profitable carmaker, is planning to become the largest shareholder in Volkswagen through a stake of 20 per cent in a surprise move that will change the face of the German automotive industry.

The purchase, costing at least Euro 3.3bn based on Friday's closing price, will help secure VW against the prospect of a hostile takeover and strengthen the independence of Porsche, a family-controlled company.

It underlines the relative financial strengths of the companies as Porsche, which sold 88,000 cars last year, takes a stake in Europe's largest carmaker, with sales of 5.1m vehicles but a loss from its main VW brand.

Wendelin Wiedeking, Porsche's chief executive, said: "This 'German solution' we are seeking is an essential prerequisite for the stable development of Volkswagen". He highlighted the importance of the relationship between the two companies: VW helps manufacture Porsche's Cayenne and they are co-operating in the development of petrol-electric hybrid engines.

Ferdinand Piëch, VW's supervisory board chairman and one of Porsche's largest shareholders, is seen as a main driver in the deal.

Both VW and Lower Saxony, the local state that is VW's largest shareholder with an 18 per cent stake, welcomed the move. Porsche underlined that "under no circumstances" would it consider a takeover of VW.

"It looks like the old habit of a German industrial solution," said Jürgen Pieper, analyst at Bankhaus Metzler. "In the short-term Porsche's investors will dislike it but it could make sense in the long-term."

Porsche will finance the deal out of its large cash pile. It has already bought a stake of under 5 per cent in the market and is eyeing the 13 per cent VW owns.

Merrill Lynch is advising Porsche.