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Major merger

glb/rm, dpa/ap/afpMay 6, 2009

The boards of the two German auto giants have agreed to merge, after Porsche had tried for years to fully acquire Volkswagen. Porsche’s debt, however, may force the two firms to look for outside capital.

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The name Porsche in the background, the VW symbol in the foreground
Porsche and VW - one of the biggest mergers in the history of the German automobileImage: picture-alliance/ dpa

The announcement came late Wednesday after a meeting between family and board members of the two German companies in the Austrian city of Salzburg.

Porsche CEO Wendelin Wiedeking released a statement following the closed-door meeting in which he said the merger between his company and Europe’s largest carmaker, Volkswagen (VW), would happen in the near future.

The other nine VW-owned brands, which include luxury names such as Audi and Bentley, are to be incorporated into the merger. The two firms said they would publish the exact details of the deal, including the locations of the umbrella company's headquarters, over the next four weeks.

Porsche debt still a problem

However, according to German media, the merger still requires additional investor capital to pull Porsche out of debts.

Wiedeking said outside investors weren’t necessary at the moment, but he didn’t rule out inviting potential investors at a later stage.

Porsche has seen a significant decrease in sales since the third quarter of last year, as consumers have proven reluctant to make big purchases during the economic downturn. Porsche made over 5 billion euros ($6.6 billion) in profits during that time, but experts say those figures were due in large part to its holdings in VW.

Failed takeover bid

Although Porsche does hold a majority stake in Volkswagen after making an audacious takeover bid for the company over three years ago, it failed to complete the acquisition.

A silver Porsche 911 Turbo
The sports car giant from Stuttgart couldn't take over Europe's largest carmakerImage: picture-alliance/dpa

Reports said Porsche wanted to purchase 75 percent of VW’s shares but was unable in the end to come up with the capital.

Leading up to Wednesday’s meeting, VW had also said it was looking into the option of taking over Porsche, which, however, would have meant buying out its debt. The recapitalization would have cost the Wolfsburg firm in excess of five billion euros.

VW is by far the bigger company, with sales figures 15 times higher than its German peer.