Porsche and VW merger 'in doubt'

A war of words has broken out over Porsche's debt burden

German car giant Volkswagen (VW) has said it is suspending merger talks with luxury carmaker Porsche.

VW said that constructive negotiations were not possible at the moment and urged Porsche to reduce its debt.

But Porsche said while a meeting scheduled for Monday had been cancelled, negotiations over the merger would continue.

The two carmakers agreed to merge earlier this month and said all 10 brands would remain independent.

Nine of the brands are owned by VW, and the other is the Porsche sports car brand.

Long history

In January, Porsche announced it had increased its stake in VW to more than 50%, and said it planned to lift its stake to 75%.

The negotiations that began last week will continue as planned Porsche How Porsche made billions

Porsche took on 9bn euros ($12.2bn; £8bn) of debt to increase its stake in VW, the source of increasing tension between the two companies.

VW and Porsche own stakes in each other though a complicated family history that unites the two carmakers and the German state of Lower Saxony, which holds a 20% stake in VW and can block strategic decisions under the "VW law".

VW chairman Ferdinand Piech is the grandson of Ferdinand Porsche, the founder of the car company that bears his name. He has a seat on Porsche's board.

Mr Piech strained relations last week by saying that Porsche must trim its debt if the merger was to move ahead. But Porsche released a statement on Sunday saying that negotiations between the two German car manufacturers "will continue as planned".

Mr Piech and the Porsche family that are controlling shareholders are due to meet later on Monday.

About 1,000 Porsche employees have staged protests at plants in Germany in protest against the merger.

Shares in Porsche fell 7.3% to 38.28 euros on Monday, while VW stock was down 1.6%.