Under the deal, VW will initially buy a 42% stake in Porsche by the end of this year for 3.3bn euros ($4.7bn; £2.8bn).
The deal ends months of acrimony between the two firms, and concludes Porsche's failed efforts to buy VW.
Over the past year Porsche built up major debts to get a 51% stake in VW, only to fall short of the required 75% when it could not raise more funds.
[Read the full story on BBC World]
