Volkswagen will likely complete the first stage of its planned integration with indebted Porsche SE when VW buys a 49.9 percent stake in Porsche's profitable sports car business next week.
Volkswagen is already the most successful multi-brand group in the auto industry, VW Chief Executive Martin Winterkorn told an extraordinary shareholder meeting in Hamburg on Thursday.
Now, together with Porsche, we will climb an even bigger step to the top, he said.
Winterkorn wants preferred shareholders to help fund the 3.9 billion euro purchase of the Porsche AG stake from Porsche SE -- VW's majority owner -- which will help boost VW profits as it looks to overtake Toyota as the world's top carmaker.
VW has emerged as an early winner from the industry crisis thanks to its successful Audi brand and dominant market share in growth markets like China and Brazil, which have helped it amass a war chest of 13.4 billion euros ($20.3 billion) in net industrial cash.
Rivals like Europe's second-largest carmaker Peugeot Citroen are trying to keep pace with VW by looking for new partners like Mitsubishi Motors.
While few doubt the strategic logic of the VW/Porsche deal, the strength of the Porsche brand or the industry-leading margins reaped by selling high-performance cars like the 911 Turbo, some VW shareholders have voiced unhappiness over the lofty valuations.
British pension fund Hermes and Norway's sovereign wealth fund have been openly critical, with the latter calling the deal unacceptable.
We are absolutely convinced that Volkswagen is paying a fair price, VW finance chief Hans Dieter Poetsch responded.
Any shareholder approval for a capital hike would last until December 2014 and mean VW could issue 135 million new non-voting preference shares, more than doubling the capital of this class of stock.
Since most VW shares in free float have no voting rights, minority investors cannot prevent the capital hike but they could demand a steep discount to current prices during the preferred share placement.
VW plans to buy Porsche AG and car dealer group Porsche Holding for 16 billion euros in equity and debt.
Both companies are owned by the wealthy Porsche and Piech family, whose listed investment vehicle Porsche SE needs the deal to handle billions of euros in debt.
Poetsch gave investors a peek into the valuation of Porsche Holding on Thursday when he revealed previously unpublished data showing the 3.55 billion euro enterprise value was based on consolidated revenue of 10.8 billion euros and operating profit of 400 million for fiscal year 2008/09.
VW would thus be paying roughly 8.9 times earnings to acquire Europe's largest car dealership group.
Volkswagen has said four members of the Porsche and Piech clans that sit on VW's supervisory board did not influence the outcome of the deal.
Should shareholders agree on Thursday to give VW's home state of Lower Saxony the right to appoint two representatives to VW's board, Porsche SE will have to deconsolidate VW from its accounts, leading to a substantial book loss.
Lower Saxony owns a fifth of VW's voting rights.
(Editing by Simon Jessop)