Forget Bernie Madoff being sentenced tonight for his $US65 billion investment Ponzi scheme, the biggest drama in world business at the moment is the Dynasty on the Rhine battle between the different sections of the Porsche family and their proxies, car groups, Volkswagen and Porsche itself.

Of all the situations to have emerged since the credit crunch and recession erupted almost two years ago, the Porsche soap opera is the most intriguing and the most farcical.

A brief back story: Porsche had been talking Volkswagen for over three years and last year staged a secret raid, using options and other derivatives to grab a controlling 51% stake, or so it thought.

To finance, then convert its options and other derivatives, Porsche was forced to borrow billions of euros (dollars) to settle its controlling stake in Volkswagen.

But the fall of Lehman Brothers, and then the rapid collapse in demand for cars and then timhe recession, caught it short of cash and unable to exploit its controlling holding. The State of Lower Saxony, a 20% shareholder in VW, blocked any move and Volkswagen’s autocratic chairman, Ferdinand Piech, a member of the Porsche family and owner of around 11% of the sports car group outright, fought off his family to the point where Porsche sued for peace and borrowed a huge loan from Volkswagen to keep its financiers at bay.

That left Porsche even more exposed, and when Mr Piech and his CEO, Martin Winterkorn proposed a humiliating deal whereby VW would buy the Porsche business, leaving the debts in the company, and run it as one of the nine car groups of VW, the Porsche family threw a tizzy and sought help from a Middle Eastern investor and then the German Government.

The Middle Eastern investors in Qatar seem more interested in helping VW absorb Porsche and the German Government twice rejected Porsche pleadings for a multi-billion euro loan to cut its debts. Porsche felt that if the German Government helped finance the sale of General Motors Opel group to new owners, then a German icon like Porsche should be established.

That was last week.

Over the weekend a new eruption in this imbroglio with news, on the website of the Der Spiegel magazine in Germany, that the VW board had given Porsche a final ultimatum: agree to a proposal for a cross shareholding by the close of business tonight (Australian time) or forget the whole thing.

And if Porsche rejected that proposal, VW said it could call in its 700 million euro (around $A1.2 billion) loan to Porsche, would could trigger a collapse of the ailing car maker (which has seen car sales fall by over 20% and profits vanish) and which has debts of around 9 billion euros, for more than $A15 billion.

While Porsche currently owns 51% of Volkswagen, (and Porsche is controlled by the Porsche and Piech families) this would change radically under the VW proposal.

According to Der Spiegel, VW would take over 49.9% of Porsche, with the remainder staying in the hands of the Porsche holding; ultimately, the Porsche and Piech families would have more than 40% of the merged company, Lower Saxony 20%, Qatar, 15% per cent and an unspecified German state fund 5% (a loan by another way).

On Sunday VW denied the deadline story, but not the latest deal. Porsche is negotiating with Qatar for a multi-billion euro loan to cut debt and enable it to meet interest payments. No loan, no deal and Porsche could be off the cliff, like the sales of its high-priced sports cars.