Raising the Stakes

In a statement, Porsche -- Volkswagen's largest shareholder -- said it had exercised an option on 3.5 percent of VW's shares to increase its 27.3 percent stake in Europe's biggest carmaker to 30.8 percent. It will cost Porsche an estimated 1 billion euros ($1.34 billion)

Under German law, a 30-percent stake in a company obliges the holder to make a full takeover bid. The shares would be transferred on Wednesday.

The move by Porsche, which has been rumored for some time, seems to be an effort to protect VW from a hostile raid from another source.

Porsche to keep VW in German hands

In an interview with the Bild newspaper published on Monday, Porsche's CEO Wendelin Wiedeking said: "If a hedge fund dismantled VW and sold that on the stock market, we would lose our most important partner. We cannot let that happen, that's why we acted."

The timing is significant because a European court is expected to rule soon against a German law dating from 1960 which caps the voting rights of shareholders at 20 percent, even if they own a greater share.

On Feb. 13, the advocate general of the European Court of Justice advised that the law was incompatible with EU treaties guaranteeing the free movement of capital, and the court itself is certain to follow his advice later this year.

The move by Porsche to raise its stake also confirms its desire to tighten its control of a company with which it has close historical and industrial links. Porsche and VW developed the Cayenne and Touareg four-wheel-drive models in a joint venture, and two senior Porsche executives sit on the VW board. Porsche's increased stake will also protect VW from any foreign takeover.

Increased stake but no immediate takeover plans

However, while analysts believe that the move signals Porsche's intent to lay the groundwork for an eventual takeover or merger involving VW, the company itself made it clear that it had no intention of acquiring a majority stake in VW.

"We do not expect many Volkswagen shareholders to offer us their shares, which means simply that we intend to go to 31 percent," a spokesman said in a statement. "We do not by any means intend to take over."

Porsche is offering other shareholders 100.92 euros ($) per share,14 percent less than the €117.70 closing price on Friday which values the VW group at 33 billion euros.

Wiedeking said that as the global car market gets increasingly and fiercely competitive, the move to bolster the ability of both groups to meet the challenges of the industry was "a logical step."