Does Porsche + Volkswagen deal = a boxter on Diesel???

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By Simon Kennedy, MarketWatch

LONDON (MarketWatch) -- Shares in Germany's Porsche SE surged over 10% Friday after Volkswagen agreed to buy a 42% stake in its core sports car business as the precursor to a full merger in 2011.

Volkswagen /quotes/comstock/11e!fvow (DE:VOW 211.92, -16.07, -7.05%) said it will pay up to 3.3 billion euros for the stake by the end of the year and will issue new preferred shares sometime in the first half of 2010 to finance the acquisition.

/quotes/comstock/11e!fpah3 PAH3 49.61, +4.91, +10.98%
/quotes/comstock/11e!fvow VOW 211.92, -16.07, -7.05%

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The deal will create an automotive giant with ten major brands -- including Volkswagen, Porsche, Audi and Skoda -- annual sales of around 6.4 million vehicles and over 400,000 employees.

The deal follows a failed attempt by Porsche /quotes/comstock/11e!fpah3 (DE:PAH3 49.61, +4.91, +10.98%) to take over its bigger rival. Porsche amassed over 10 billion euros of debt after building a roughly 50% stake in Volkswagen and acquiring options on around another 20%.

But it was unable to sustain the high levels of debt and was eventually forced to seek help from Volkswagen.

Shares in Porsche jumped 10.7% in early trading Friday, while Volkswagen dropped 3.5%.

Porsche is negotiating to sell its remaining options on Volkswagen to investors in Qatar.

Volkswagen said Friday that the planned deal is conditional on the successful sale of those options, which would make Qatar the group's third biggest shareholder.

"Additional new growth opportunities will emerge for Porsche under the umbrella of the integrated group," said Volkswagen CEO Martin Winterkorn in a statement.

"Following constructive talks, we have agreed a solution that reflects the interests of all parties. I am convinced that the outcome of this integration will be the best vehicles for our customers, secure jobs and the creation of long-term value for our shareholder," he added.

Porsche said late Thursday that Winterkorn will become its CEO with effect from Sept. 15 and that Volkswagen Chief Financial Officer Hans Dieter Poetsch will take over the top finance role at Porsche on the same date.

The sports care group's former CEO Wendelin Wiedeking and finance chief Holger Haerter both stepped down late last month.

Simon Kennedy is the City correspondent for MarketWatch in London.

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