En Route: VW and Porsche

LONDON -- Europe's biggest carmaker, Volkswagen, is finally taking over Porsche after agreeing on Thursday to buy a 42% stake in the sports car unit of debt-ridden Porsche, ending months of fractious relations between the two companies.

Volkswagen expects the deal to be completed by 2011 and provide a total of 700 million euros ($999 million) in savings from synergies. The carmaker will launch a capital increase in its preference shares in the first half of 2010to protect its credit after the merger and to fund the acquisition, it added.

Analysts said VW is getting a good deal. Nomura said VW is acquiring "a strong asset" for a "good price".

Last month, Porsche Chief Executive Wendelin Wiedeking agreed to step down after the Piech and Porsche families ended a longtime struggle over the future of the debt-laden German sports car maker they are part owners of. The logic was that new management would be better placed to smooth the path to a merger. (See "Porsche Chief Gets the Boot.")

Initially, Porsche's plan had been for the takeover to work the other way around. But in its efforts to raise its 51% stake in Volkswagen to 75%, Porsche built up huge debts as its plans coincided with the global credit crisis and falling demand for cars. Porsche also said on Thursday that its board had appointed Martin Winterkorn as chief executive of the new company with effect from Sept. 15. Winterkorn said the deal marked "a new era" for both companies. "Porsche is a real enrichment for our company's portfolio," he said.

Winterkorn also said the Porsche and Piech families would be the largest shareholders in the merged firm. The German state of Lower Saxony, which owns a 20.1% minority stake in Volkswagen, will retain its blocking vote.

The integrated company will have 10 brands, adding the Porsche brand to a portfolio that already includes Audi, Bentley, Bugatti, Skoda, Seat and Lamborghini. VW has pledged it will give Porsche "independence" and it said it would preserve its "solid financial base."

Nomura analysts, however, said that Volkswagen investors might be put off by the capital increase announced by the company for the first half of next year. Others share their concern: "The plan could curb the share price development of VW preference shares,' said analysts at LBBW in a note to clients. UBS questioned the need for a capital increase and the timetable for raising the cash.

"The capital increase in the first half next year is obviously a massive dilution for VW preference shareholders," said Gregor Claussen, an analyst with Commerzbank.

Shares of Volkswagen ( VLKAY - news - people ) fell 2.2%, to 58.80 euros ($83.93), while Porsche ( PSEPF - news - people ) rose 11.3%, to 49.64 euros ($70.84) in morning trading in Frankfurt.