The deal comes just days after talks between the two had stalled and Halliburton prepared to go hostile with its takeover bid. The combined energy company would generate slightly larger revenue than Schlumberger Ltd. (SLB), currently the world's biggest oil services company.
Companies like Halliburton and Baker Hughes can be the first in the energy sector to the feel pressure from plunging prices, and both have seen their stock fall in recent months. Global oil prices have tumbled 31 percent over the past 5 months to levels not seen in four years.
The transaction is valued at $78.62 per Baker Hughes Inc. share, a 31 percent premium to its Friday closing price of $59.89. Baker Hughes shareholders will receive 1.12 Halliburton shares plus $19.00 in cash for each share they own.
The companies put the deal's enterprise value at about $38 billion.
When the transaction is complete, Baker Hughes stockholders will own approximately 36 percent of the combined company.
On Friday it appeared that talks were falling apart, with Baker Hughes saying that Halliburton had refused to raise its first and only offer. The company did not say what that offer was.
Halliburton Chairman and CEO Dave Lesar said Monday that the combined company will realize annual cost savings of nearly $2 billion.
Halliburton plans to finance the cash portion of the acquisition through a combination of available cash and fully committed debt financing.
The boards of both Houston companies approved the deal unanimously and it's targeted to close in the second half of 2015. Shareholders and regulators must still sign off on the tie-up.
Halliburton said that it is willing to divest businesses that generate up to $7.5 billion in revenues, if required by regulators, but the company believes that the divestitures required will be significantly less. Halliburton has also agreed to pay a termination fee of $3.5 billion if the transaction ends due to a failure to obtain the necessary antitrust approvals.
Baker Hughes's stock rose more than 15 percent in Monday premarket trading, while shares of Halliburton fell more than 3 percent.