July 23 (Bloomberg) -- When Ferry Porsche designed the automaker’s first sports car in 1948, he based it on the Beetle his father built for Volkswagen under a contract with the Nazis in 1934.

The Porsche family’s connection with state-controlled Volkswagen grew over the years, with scion Ferdinand Piech becoming VW’s chief executive officer in 1993. Then last year, Porsche SE Chairman Wolfgang Porsche, Piech’s cousin, backed an effort to try to take control of Volkswagen AG. The resulting feud closed a chapter today with the departure of Porsche’s CEO and now it’s VW that may end up owning Porsche.

Volkswagen Chairman Piech is winning the upper hand, after Porsche racked up 10 billion euros ($14.2 billion) in debt trying to take over VW. Porsche approved a step needed for a merger at an all-night meeting and wants to sell a stake to a Qatar investment fund. A takeover by VW after that sale would give victory to Piech. Porsche CEO Wendelin Wiedeking announced his immediate departure today, accepting a 50 million-euro severance package, half of which will go to a charity.

“This will be a huge crowning glory on Piech’s career, unifying all the historical links between the companies in a nice, neat package,” said Tim Urquhart, an automotive analyst with research firm IHS Global Insight in London. “He loves these battles and this is his biggest. He’s the kingmaker.”

Ferdinand Porsche was Volkswagen’s first leader. His daughter married Anton Piech, father of the current VW chairman, and he became a Volkswagen director.

Own Terms

The extended Porsche-Piech family controls all of the sports-car maker’s voting shares. While Porsche Chairman Wolfgang Porsche, 66, and cousin Ferdinand Piech, 72, were both in favor of a combination of the carmakers for years, they have disagreed over how a pact should come together and now each wants a deal on his own terms.

Piech, who worked his way up through VW’s Audi unit to become CEO and then chairman at Europe’s largest carmaker, aims to absorb the 911 sports-car maker into the VW empire. That would make Porsche VW’s 10th brand in a line-up that includes less expensive models such as Skoda and Seat.

At Porsche, Wolfgang Porsche and Wiedeking had wanted their company to be the acquirer, even though Volkswagen was bigger. Though Porsche makes fewer cars in a year than Volkswagen does in a week, Wiedeking started in 2005 to accumulate shares in VW and by January Porsche’s stake in VW exceeded 50 percent.

Going Wrong

It started to go wrong last year. Wiedeking had pushed Porsche to use borrowing and stock options to finance the purchases, a strategy that backfired when the financial crisis left Porsche short of cash.

Family confrontations also started complicating the deal. Piech made a rare public appearance at a Volkswagen event in Sardinia May 11, a week after the families agreed to pursue an integrated car company. He openly criticized Porsche CEO Wiedeking and Chief Financial Officer Holger Haerter for creating Porsche’s financial problems.

His presence, which wasn’t part of the official program to promote the fifth-generation Polo subcompact, showed that Piech was united with other opponents of Porsche’s goal of taking over Volkswagen and overturning a German law that secures a blocking minority for the state of Lower Saxony.

Asked whether he was happy that Porsche’s plan to gobble up VW had collapsed only five days earlier, Piech said with a smile: “Sometimes one doesn’t need to say a whole lot.” He was flanked by Bernd Osterloh, Volkswagen’s top labor leader, and Lower Saxony Premier Christian Wulff’s spokesman.

‘Soap Opera’

Piech, a supervisory board member at Porsche, underlined his resistance to the company’s plans by not showing up at a Porsche board meeting on May 18.

“When egos get in the way of decision making, it’s not very good,” said Stephen Pope, global chief market strategist at Cantor Fitzgerald in London. “It’s like watching a soap opera.”

The feud is a distraction for the carmakers that may lead to “poor decisions,” Pope said.

Porsche’s supervisory board started early at its meeting in Weissach, Germany, getting underway yesterday into the night. VW’s board met separately in Stuttgart today.

An integration of Volkswagen with Porsche will benefit both automakers in the global market, VW CEO Martin Winterkorn said after the meeting, where board members agreed on the concept of a combination. A Qatar investment fund will acquire 17 percent of VW, becoming its third-largest investor.

Qatar Options

The shares will result from a transaction with Porsche to take over options that can be converted into VW shares, a person familiar with the situation said earlier. The Persian Gulf state will at the same time provide a 750 million-euro loan to Porsche, said the person.

In a statement, Porsche said its supervisory board approved a planned capital increase of at least 5 billion euros. It also said Porsche’s supervisory board supports talks to sell a stake to Qatar, provided it is part of a plan to form an integrated car company with Volkswagen. It didn’t elaborate.

Almost six hours later, Porsche announced today that CEO Wiedeking and CFO Haerter are quitting. Michael Macht, head of production, will run Porsche’s automotive division. The 48-year- old Macht joined Porsche in 1990 and became a member of the company’s executive board in 1998.

Wiedeking and Haerter see their departure “as a significant contribution to the appeasement of the situation and to support the forming of an integrated car manufacturing company,” Porsche said. “Both gentlemen will accompany the handover at the board of management level positively and support their respective successor in their tasks.”

Piech’s CEOs

Qatar and Porsche’s family owners have been asked to participate in the planned 5 billion-euro share sale, people familiar with the talks said last week. Qatar may pay 2 billion euros for a stake, one of the people has said.

Separately, Volkswagen may pay 4 billion euros for a 49 percent stake in Porsche’s operating company, according to the people. Volkswagen may then acquire the remaining stake within two years in a deal that would value the entire company at about 8 billion euros, according to one of the people.

Piech has a history of forcing executives who have lost his favor to step aside. In 1992, he helped push out Porsche CEO Arno Bohn, clearing the way for Wiedeking to take control. He also engineered the 2006 ouster of Bernd Pischetsrieder, Piech’s handpicked successor as Volkswagen CEO.

‘Sacred Cows’

Wiedeking, who said in January 2007 that his relationship with Piech was “excellent,” ultimately fell out of favor with Volkswagen’s chairman after saying in September 2007 that there would be no “sacred cows” after Porsche takes over, suggesting he might seek to unravel Piech’s legacy.

“As Volkswagen is probably the solution to Porsche’s liquidity problems, Mr. Piech could be the winner,” said Juergen Meyer, a fund manager with SEB Asset Management in Frankfurt.

To contact the reporters on this story: Andreas Cremer in Berlin at acremer@bloomberg.net; Chris Reiter in Berlin at creiter2@bloomberg.net

Last Updated: July 23, 2009 12:49 EDT