Volkswagen buys 49.9% in Porsche for $5.8 bn

European auto giant Volkswagen Aktiengesellschaft on Tuesday said it has bought 49.9 per cent stake in luxury car maker Porsche AG for 3.9 billion euros ($5.8 billion).

Volkswagen said the combination of the two companies follows a compelling strategic, industrial and financial logic and the move is expected to help it gain around 700 million euros in annual operating profits in the long term.

"The Stuttgart-based car maker will allow Volkswagen to further expand its position in the premium business, which offers particularly strong earnings," Volkswagen said in a statement. "As a result, the annual operating profit of the

Volkswagen Group is expected to increase by some 700 million euros in the long term," it added. Volkswagen said that with return on sales of 10.3 per cent, Porsche is the world's most profitable automobile manufacturer.

It said, "The acquisition of the trading business of Porsche Holding Salzburg is planned for 2011. The creation of the integrated automotive group is then to conclude with the merger of Volkswagen AG and Porsche SE during the course of the same year."

Last week, Volkswagen shareholders approved the proposal for issuing 135 million new preference shares, a move aimed at ensuring greater financial flexibility prior to the company's proposed merger with Porsche.