BERLIN: German sportscar maker Porsche yesterday confirmed that it would buy/build a 20 percent stake in Volkswagen in order to help the latter prevent any hostile takeover occuring.

The Porsche investment in Volkswagen worth at least £2bn is expected to place Porsche among the majority shareholders with Volkswagen, the German state of Lower Saxony and Porsche totaling a combined voting stake of 51.2 percent. The family-run Porsche would be the biggest shareholder with its 20 percent stake.

For some time now, Volkswagen’s fortunes have been on a downturn with its operations in the US and Spain running up huge losses, trouble in China and European operations facing the prospects of downsizing. With its share price plummeting, the troubled car manufacturer has been vulnerable to a hostile takeover.

Investing in VW will also mean a strategic move for Porsche who were worried their dependence on the former’s cooperation might expose their own business to some risk, especially if a hedge fund were to buy VW. The chassis for Porsche’s Cayenne are made by VW who are a significant supplier contributing 30 percent to Porsche’s sales volume.

The state of Lower Saxony had until now been the largest shareholder with 18.2 percent and was aware of VW’s vulnerability and been hoping for just such a partnership in order to stave off a foreign takeover. VW is one of the largest employers in LowerSaxony.

The markets were surprised by the deal and have reacted sharply: Porsche’s share price fell 11.7 percent. However, analysts said this was the right time to buy Porsche shares as the deal would help the company secure the production of its Cayenne as well as give it access to VW’s production capacity.

The luxury car maker currently has less than 5 percent stake in VW.