VW's supervisory board gave the green light to the merger with luxury sports car maker Porsche after years of boardroom wrangling and on-again-off-again deals. Volkswagen chief Martin Winterkorn is to become head of both companies under the plan.

"We have more than ever the means (to become) number one in the automotive industry," Winterkorn said.

The deal comes after a protracted power struggle between Porsche and VW, which saw Porsche CEO Wendelin Wiedeking step down last month.

The agreed-upon merger is being seen as a victory for VW head Ferdinand Piech following earlier attempts by Porsche to take over its much bigger rival.

VW is to initially buy a 42-percent stake in Porsche by the end of this year for 3.3 billion euros ($4.7 billion), and then increase its capital in the first six months of 2010.

Porsche will now become the 10th brand of the Volkswagen group, which includes Skoda, Lamborghini and Audi. Volkswagen, based in Wolfsburg, Germany, is Europe's biggest automaker and has set its sights on overtaking Toyota to become the world's top carmaker.

The company employs around 370,000 people in 61 plants around the globe. Last year, VW produced 6.2 million vehicles.

dfm/jam/dpa/AP
Editor: Rick Demarest