Porsche, the German luxury sports carmaker, is to spend about €3bn (£2bn) buying a 20% stake in Volkswagen to safeguard it from a foreign takeover, it emerged yesterday.

The move cements long-established links between the two German car groups. But it also comes after a week in which the share price of VW, Europe's biggest carmaker, jumped 17% on rumours that overseas investors, possibly including Kirk Kerkorian, the US corporate raider, were planning to take a strategic stake. VW has been targeted in the past by American hedge funds keen to see a reform of its ownership structure.

Wendelin Wiedeking, Porsche's chief executive, said: "With this commitment, we want to secure our business relations with VW and safeguard an essential part of our future planning over the long term." Mr Wiedeking made plain that the move is also designed to pre-empt the expected decision by the European court of justice next year to declare the so-called VW law, which bans an individual shareholder from holding more than 20% of the company, illegal.

"Our planned investment is the strategic answer to this risk," he said. The government of Lower Saxony is VW's biggest shareholder, with 18.2% of the voting rights, and in effect holds a veto on board decisions. Together with VW itself, which owns 13% of its own shares, and the planned Porsche holding of 20%, the holdings in effect make VW bid-proof.

The European commission has ruled that the 1960 VW law, which requires a majority of 80% for critical corporate decisions, breaches EU rules on the free movement of capital. The German government appealed to the court of justice a year ago against the ruling.

Mr Wiedeking said Porsche's stake would not reach the 30% threshold at which it would be forced to make a takeover offer for VW.

The two German car groups, which recently formed an alliance to develop hybrid petrol and electric engines, have built strong links, with VW supplying 30% of Porsche's total sales volume. The two combine work on Porsche's Cayenne sports utility vehicle and VW's Touareg SUV, with key elements for both built in Bratislava, Slovakia.

But the family links between the two are even stronger. Ferdy Porsche, the sports carmaker's founder, was the central figure in developing the original VW Beetle and building the group's main factory in Wolfsburg, Germany. Ferdinand Piech, a former Porsche executive and grandson of Ferdy, chairs VW's supervisory board.

Porsche's planned investment, to be financed from its cash reserves, comes as VW is in the throes of major changes to restore profits at its core brand by taking out up to €10bn in costs over the next three years. VW and its unions are due to hold talks today over the group's plans for a new compact SUV, the Marrakesh. VW is demanding substantial cuts in pay and changes in working practices, threatening otherwise to build the car in Portugal where it can produce each one for €1,000 less.

The group, which pays its 100,000 German workers 20% more than the industry average, has said it will axe up to 30,000 jobs, close component plants and sell off or float its IT service unit Gedas and car-hire business Europcar.

VW's crisis contrasts with the turnaround engineered by Mr Wiedeking at Porsche from its near-collapse in the early 1990s. One of Germany's highest-paid executives, he has delivered 11 straight years of double-digit profit growth, pushed sales to last year's record 89,000 and set in train plans to build a fourth new model, the Panamera saloon, to add to the famous 911, the Boxster and the Cayenne.

The defensive ploy by Porsche to acquire 20% of Volkswagen is likely to be seen as the latest protectionist manoeuvre by German industry and the political class to avert takeover by what were recently dubbed Anglo-American "locusts".

Still traumatised by Vodafone's hostile acquisition of Mannesmann five years ago, German politicians and industrialists have watched with growing anxiety the multi-billion euro inroads made by hedge funds and private equity into the country's manufacturing and services. Two US investor groups, Brandes and Capital, already own 16% of VW between them.