Europe's leading carmaker, Volkswagen has agreed to buy a 42% stake worth $4.7 billion in the sports car unit of Porsche.

The current move of Volkswagen is move towards merging the two car manufacturers into a German automotive giant by 2011.

Volkswagen's CEO, Martin Winterkorn will be the head of the company.

Martin Winterkorn, CEO of Volkswagen said, "We now have what it takes to become the automotive industry's number one."

Volkswagen will raise its capital in the first half of 2010 via issuing new preferred shares.

It may be noted here that Martin Winterkorn had earlier said Gulf state of Qatar would take a direct 17% stake in Volkswagen.

The deal, which is clearly a failure of Porsche's bid to take over Volkswagen, put an end to a long-drawn-out power struggle.

Skoda, Seat, Lamborghini, Audi, Bentley are some of the well-known brands of Volkswagen.