Porsche plans to take 20% stake in Volkswagen to prevent takeover

German luxury carmaker Porsche has announced plans to buy a 20 per cent sake in Volkswagen, Europe's largest car manufacturer, to prevent a hostile takeover from foreign investors.

The €3.3 billion proposition is seen as a pre-emptive move should the European Court of Justice set aside the so-called "Volkswagen law" which limits outside shareholder voting rights to 20 per cent even if they hold more of the group capital.

Stuttgart-based Porsche has many strategic agreements with VW, including joint development of a hybrid engine and production contracts for sports utility vehicles. In all, VW supplies 30 per cent of Porsche unit sales, something which could be endangered if the VW law is set aside and a hostile takeover results.

"Our planned investment is the strategic answer to this risk," chief executive Wendelin Wiedeking said in a statement. "The stake will in no case reach the level at which Porsche would have to make a public offer to take over VW."

The announcement would mean that Porsche, Volkswagen and the state government of Lower Saxony, where VW is located, have a combined stake of 51.2 per cent in the VW group.

Volkswagen shares have risen 16 per cent in value in the last week after heavy trading prompted speculation of interest from Kirk Kerkorian, the US billionaire and General Motors shareholder who made a failed takeover bid for Chrysler in 1995.

Mr Ferdinand Piech, chairman of the VW supervisory board, welcomed the news as "important for the long-term automobile business". Mr Piech is a member of the family that controls Porsche and is grandson of Ferdinand Porsche, who developed the Volkswagen "Beetle" for Hitler.

The announcement will refocus attention on the long-running row between the European Commission and Germany over the 1960 Volkswagen law, which Brussels says is incompatible with the single market because it makes the company unattractive to foreign investors.

The VW law has been stoutly defended by German chancellor Gerhard Schröder, who sat on VW's supervisory board for eight years during his time as state premier of Lower Saxony. His argument has been continued by the Christian Democrats since they took over the state government.

State premier Christian Wulff says he is convinced the VW rule is lawful and that the EU's lawsuit is "as useful as a hole in the head". He welcomed the Porsche announcement yesterday saying it "provides a good opportunity for Germany's automobile industry".