Volkswagen will buy 42 percent of Porsche's sports-car business en route to a full merger by the end of 2011, the companies announced Thursday.

VW will pay $4.7 billion for its initial stake in Porsche. It positions the new company to have 10 brands and global sales of 6.4 million, and Volkswagen CEO Martin Winterkorn is likely to lead the entity.

Porsche had tried--and failed--to takeover VW, but the attempt left Porsche debt-ridden and forced it to seek a deal with its much larger rival. It also led to the departure of Porsche CEO Wendelin Wiedeking. With cutbacks and sales dips by General Motors and Toyota, the merged Volkswagen could challenge for the title of world's largest automaker.

“Volkswagen and Porsche today took a decisive step towards a joint future,” Winterkorn said in a statement. "As a group with now 10 strong, independent brands, we will further expand our unique global position. More than ever before, we now have what it takes to become the automotive industry's number one.”

Porsche will keep its headquarters and retain some independence, similar to Audi's arrangement under the VW umbrella.