Volkswagen and its key shareholder, the state of Lower Saxony, have confronted Porsche with an ultimatum to accept a tie-up of the two carmakers under VW's tutelage or else face more severe financial turmoil, Web site Spiegel online reported.

Porsche Chief Executive Wendelin Wiedeking and Chairman Wolfgang Porsche have been urged to agree by the end of June that VW takes a 49 percent stake in Porsche's sports car business for 3-4 billion euros ($4.2-$5.6 billion), Spiegel magazine reported in its online edition on Saturday, without saying who provided the information.

According to the proposal, the Emirate of Qatar would buy Porsche's stock options in VW, which would subsequently integrate the Porsche sports car business into its operations.

VW would not comment on the report. Porsche was not immediately available for comment, neither was the Emirate of Qatar.

The new merged carmaker would eventually be 40 percent owned by the Porsche and Piech families, 20 percent owned by Lower Saxony, 15 percent owned by Qatar with another sovereign wealth fund holding a further 5 percent, Spiegel reported.

VW threatened it could insist on redemption in September of a 700 million euro loan it granted to Porsche, should Porsche reject the offer, Spiegel online said.

Porsche racked up 9 billion euros of debt trying to swallow its much bigger peer Volkswagen before the financial crisis turned the tables and threatened to unravel the deal.

Porsche, which owns 51 percent in VW, had abandoned plans to raise its stake to 75 percent but still owns options to buy VW shares.

The tie-up proposal was devised by Christian Wulff, the state premier of Lower Saxony, which holds a blocking minority of 20 percent in VW, as well as Porsche co-owner Ferdinand Piech and by the CEO and CFO of VW, Spiegel online said.

Qatar would only pursue an investment in a merged VW and Porsche if all major shareholders agree on the set-up, the Web site added.

In a separate article, daily Sueddeutsche Zeitung reported on Saturday that Qatar plans to buy Porsche's stock options in VW and is no longer interested in buying an interest in Porsche alone, citing unspecified sources.

Porsche had said on Friday it was close to reaching a deal with Qatar that could help solve its financial problems.

(Reporting by Ludwig Burger, Hendrik Sackmann and Arno Schuetze)

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