Volkswagen has agreed to buy the remaining 50.1 percent stake in Porsche's sports unit, which it does not already own by August, the company announced on Wednesday.
"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," said Volkswagen Chief Executive Martin Winterkorn in a statement.
Under the deal, Volkswagen will pay 4.46bn euros ($5.6bn, £3.6bn) plus one common share to acquire the stake. The agreement is expected to reduce costs and improve earnings for Volkswagen.
"The accelerated integration will allow us to start implementing a joint strategy for Porsche's automotive business more quickly and to realise key joint projects more rapidly," said Hans Dieter Poetsch, chief financial officer of Volkswagen.
The deal is one of the dramatic takeovers in the history of the car industry. Porsche was trying to take over Volkswagen way back in 2008.
Initially, Porsche acquired a minority stake in Volkswagen and the company was rumoured to have accumulated nearly 75 percent of Volkswagen's voting stocks.
But Porsche's takeover ambitions collapsed by the end of 2009 when it failed to acquire the required 75 percent stake. Porsche was also accused and sued by shareholders for misleading them.
Later, Volkswagen acquired 49.9 percent of Porsche as the firms entered into a deal under which Volkswagen agreed to take over Porsche.
One of the hurdles in the merger was the huge tax bill of over one billion euros both companies had to bear. However, the inclusion of one common share in the deal is expected to help the firms avoid the bill as it could be projected as a restructuring rather than a takeover.
"It's a great deal for Volkswagen, both financially and in operative terms," the BBC quoted David Arnold, an analyst with Credit Suisse, as saying.
Porsche's sports car unit includes models such as the iconic 911 sportscar, the Cayenne sport-utility vehicle, the Panamera four-door coupe and the Boxter/Cayman models.