The Volkswagens supervisory board on Thursday approved absorbing Porsche into VW by the end of 2011, with an initial stake to be acquired this year for euro 3.3 billion ($4.72 billion), the Wolfsburg-based company said in a statement. The merger will be completed fully in the next two years.

Under the agreement, the merger is to be fully completed in the next two years, and Volkswagens solid financial base and Porsches independence will be preserved, VW said.

The agreement calls for Volkswagen to take an initial 42 per cent stake in Porsche AG by the end of 2009, the statement said. It gave a euro12.4 billion-price tag for Porsche, including the expected synergy effects.

While Porsche is to retain its independence and its headquarters, the family shareholders are to sell their Porsche Holding Salzburg automobile trading business to Volkswagen for euro 3.55 billion starting in 2011, it said.

Volkswagen said in July it would pursue a merger with Porsche, but vowed the sports car maker would not lose its independence.

Under the agreement, the Porsche and Piech family shareholders will retain the largest stake in VW, the company said.

In addition, the state of Lower Saxony will remain the second largest shareholder, able to appoint two members to the supervisory board, and retaining its existing blocking minority, the statement said.

No mention was made of potential investors. A Qatar investment fund, for example, has been named as an interested party.

VW is Europes largest carmaker by sales, is based in Wolfsburg, while Porsche, famous for sportscars the world around, is based in Stuttgart.

Meanwhile, VW and its chairman Ferdinand Piech have pushed for a deal that would see Volkswagen take 49 per cent of Porsche and fold the lucrative luxury-car business into its portfolio, widening its range in anticipation of a recovery in the luxury car market. Piech is also part of the family that controls Porsche.

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