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FRANKFURT (Dow Jones)--Volkswagen AG (VOW.XE) said Thursday that it has paved the way to form an integrated car-manufacturing company with Porsche Automobil Holding SE (PAH3.XE), shortly after the resignations of Porsche Chief Executive Wendelin Wiedeking and Chief Financial Officer Holger Haerter.

"The Volkswagen supervisory board in an extraordinary meeting today supported the formation of an integrated car manufacturing company with Porsche under the leadership of Volkswagen," Europe's largest car maker said in a statement.

The company added its executive board now would begin talks with Porsche's management to work out a final agreement aimed at reaching this goal.

Christian Wulff, the governor of the German state of Lower Saxony, which is Volkswagen's second largest shareholder with a 20.1% stake, said the Volkswagen supervisory board would make a decision about that agreement at a meeting Aug. 13.

The two companies have been locked in a power struggle ever since Porsche's attempt to gain full control over its much larger German peer backfired when credit markets dried up amid the financial crisis.

Volkswagen in recent weeks pushed to take over Porsche's core sports-car operations and integrate them as its 10th brand along with name plates such as Audi, Bentley and Skoda. But Wiedeking instead rushed to hammer out a deal with Qatar to shore up the company's balance sheet and avoid an outright sale.

Wiedeking, Germany's highest-paid executive, had come under fire from Volkswagen's influential supervisory board chairman and Porsche co-owner Ferdinand Piech, Volkswagen's powerful labor unions and the German state of Lower Saxony, which can block important decisions at the Wolfsburg-based automaker through its stake of 20.1%.

But Porsche's plan to boost its stake to 75% and access Volkswagen's cash reserves derailed as credit markets contracted and a steep fall in demand hurt the sports-car operation's earnings. Tables finally turned in the two companies' power struggle when Porsche's net debt ballooned to around EUR10 billion as it built its holding in Volkswagen and the Wolfsburg-based company in March had to grant its parent a EUR700 million loan.
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