The deal puts Volkswagen in pole position to win the bidding war for Rolls-Royce Motor Cars (RRMC).

Rolls takeover battle

The acquisition of Cosworth comes just weeks after Volkswagen announced a £430m ($700m) bid for Rolls-Royce Motor Cars, Vickers' luxury car marque.

Volkswagen will use the Cosworth business to supply engines for RRMC.

BMW, the German car maker that currently provides the bulk of Rolls-Royce engines, has threatened to stop supplying the British luxury car maker if, as now seems likely, it is outbid by Volkswagen in the bitter takeover battle for the group.

Cosworth will be able to supply Rolls-Royce engines

Cosworth will help ensure that Volkswagen can continue to supply Rolls-Royce and Bentley cars.

Ferdinand Piech, chairman of Volkswagen has said his group could supply RRMC with its own engines by next year and could use Cosworth to supply replacement engines.

Volkswagen said the offer was contingent on its bid for RRMC being successful.

Sir Colin Chandler, chairman of Vickers commenting on the bid for Cosworth said: "This is excellent news for all concerned and underlines the case for our shareholders approving the sale of Rolls-Royce Motor Cars to Volkswagen this coming Friday."

Cosworth also makes engines for rally cars and Formula One teams such as Stewart-Ford.

Cosworth employs 1,200 people in the UK and America, including 700 at its headquarters in Northampton. It made an operating profit of £5.8m on sales of £116m, which included £18m of sales to Rolls-Royce.

The bidding war for Rolls-Royce Motors has turned into a long running saga. Volkswagen is now in the driving seat after it trumped BMW's £340m offer by £90m.

Eleventh hour bid

Hopes of an eleventh hour bid from Crewe Motors, wealthy luxury car enthusiasts lead by Michael Shrimpton, a Bentley driving lawyer, appear to be fading.

Mr Shrimpton is understood to be having difficulties in finalising a bid before a vital meeting of Vickers' shareholders on Friday morning.

Barring a dramatic last minute change of heart Vickers is planning to go ahead with the shareholder meeting. Unless Crewe Motors can come up with a firm offer by then, shareholders are likely to ratify the Volkswagen offer.

If Volkswagen's bid is unsuccessful it has said it will build its own top of the range limousine.