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September 23, 2017

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Wedding bells ring for VW, Porsche

FRANKFURT--The road to success for German automakers, one of the key engines driving Europe's biggest economy, is a bumpy one and while Volkswagen and Porsche are tying the knot, Opel is fighting to survive.

The courtship between Europe's biggest auto group VW and its longtime partner, luxury sports carmaker Porsche, has not always been an easy one.

It has long been the dream of Ferdinand Piech, VW's supervisory board chief and patriarch of the Porsche family, to integrate the two businesses in a bid to overtake U.S. giant General Motors as the world's number one.

But when Porsche first tried to swallow the much larger VW, it failed, and then when VW acquired 49.9 percent in Porsche in 2009 with a view to a full merger, the complex deal ran into numerous legal and tax hurdles.

Accordingly, it came as a surprise last week when the two announced they had finally found a way to bring the merger forward by two whole years, with the deal unlocking hundreds of millions of euros in untapped synergies.

Under the terms of the agreement, VW will buy the 50.1 percent in Porsche that it does not already own from holding company Porsche SE for 4.46 billion euros (US$5.5 billion) plus one VW share.

The deal, which VW and Porsche say will generate 320 million euros in economies of scale, is being structured in such a way that VW will not have to pay vast amounts of tax.

The fact that part of the payment is being made in a single VW share means the deal counts as a corporate reorganisation rather than a straightforward sale, therefore saving VW as much as 1.5 billion euros in taxes.

At the end of the day, the operation will cost just over 100 million euros, according to finance chief Hans Dieter Poetsch.

VW chief executive Martin Winterkorn said the merger will "benefit customers, employees and shareholders alike.

"The unique Porsche brand will now become an integral part of the Volkswagen Group. That is good for Volkswagen, good for Porsche and good for Germany as an industrial location," Winterkorn said.

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