FRANKFURT (AP) — Volkswagen AG's supervisory board yesterday approved absorbing Porsche into VW by the end of 2011, with an initial stake to be acquired this year for 3.3 billion euros ($4.72 billion), the Wolfsburg-based company said in a statement.

Under the agreement, the merger is to be fully completed in the next two years, and "Volkswagen's solid financial base and Porsche's independence will be preserved," VW said.

The agreement calls for Volkswagen to take an initial 42 percent stake in Porsche AG by the end of 2009, the statement said. It gave a euro12.4 billion-price tag for Porsche, "including the expected synergy effects".

While Porsche is to retain its independence and its headquarters, the family shareholders are to sell their Porsche Holding Salzburg automobile trading business to Volkswagen for euro3.55 billion starting in 2011, it said.

Volkswagen said in July it would pursue a merger with Porsche, but vowed the sports car maker would not lose its independence.

Since then, observers have been anxious to hear what plans the supervisory boards have and what sort of financial commitments are being made in their efforts to form closer ties.

Under the agreement, the Porsche and Piech family shareholders will retain the largest stake in VW, the company said.

In addition, the state of Lower Saxony will remain the second largest shareholder, able to appoint two members to the supervisory board, and retaining its existing blocking minority, the statement said.

No mention was made of potential investors. A Qatar investment fund, for example, has been named as an interested party.

VW is Europe's largest carmaker by sales, is based in Wolfsburg, while Porsche, famous for sportscars the world around, is based in Stuttgart.

In May, Porsche announced it was moving toward creating an "integrated" carmaker with VW, but emphasised it would retain its independence, and last month, Wendelin Wiedeking, Porsche's CEO, stepped down.

That came after Porsche slid deeply into debt in its own efforts to take over VW, an exercise the much smaller Porsche had been pursuing since 2005. Despite the circumstances, Porsche remains Volkswagen's biggest shareholder with about 51 percent of the shares.

Meanwhile, VW and its chairman Ferdinand Piech have pushed for a deal that would see Volkswagen take 49 percent of Porsche and fold the lucrative luxury-car business into its portfolio, widening its range in anticipation of a recovery in the luxury car market. Piech is also part of the family that controls Porsche.

Rumours have been circulating that other Porsche management would meet on their own in Stuttgart yesterday, but a Porsche spokesman said that was not the case.