Volkswagen will take over the remaining 50.1 percent of Porsche it doesn't already own for €4.46 billion, or just under A$5.5 billion.
The deal values half of Porsche at €3.88 billion, the balance of the payment being forecast dividends to the Porsche holding company, and half of the cost reductions achieved by the sale.
VW estimates the new arrangement will result in €320 million in synergies, as both companies will save money on various operating expenses with Porsche under Volkswagen's roof.
"We can now cooperate even more closely and jointly leverage new growth opportunities in the high-margin premium segment," Volkswagen CEO Martin Winterkorn said.
"Combining their operating business will make Volkswagen and Porsche even stronger both financially and strategically."
A merger was agreed to in 2009 after Porsche's disastrous takeover attempt left the sports car maker €10 billion in debt. The affair claimed the management team, and Volkswagen stepped in to save the company from financial oblivion.
That merger plan was abandoned after legal action was initiated by investors in the US and Germany. A new plan was put in place, but it carried significant tax liabilities.
VW had a 'put and call' on the remaining Porsche shares still held by the Porsche and Piech families' holding companies. The option was to mature in another two years but exposed the two companies to a large tax bill, reported to be in the region of €1.5 billion.
Volkswagen has reached agreement with German tax authorities in order to accelerate the deal and lower the tax liability for the sale.
The new deal allows VW to make the purchase without paying the German taxes that would be due on the put-call option.
VW has been under fire in recent weeks for trying to avoid the tax. CEO Winterkorn dismissed the complaints, saying the tax to be paid on higher Volkswagen Group profits would cancel out the loss.
The plan will be executed during August, with Porsche finally becoming a wholly-owned Volkswagen entity after years of legal and financial manoeuvring.
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