Struggling energy producer BG Group is recommending to shareholders a takeover offer worth £47bn from Royal Dutch Shell.
Details of the mega merger - the biggest in the industry for a decade - were released in a statement to the London Stock Exchange just hours after BG Group had confirmed "advanced discussions."
If the deal was to proceed it would create a company with a combined value of almost £180bn - overtaking HSBC to become the biggest on the FTSE 100 - and result in the 13th biggest merger ever.
The two firms said it was expected the cash and shares transaction would be completed early next year.
It represented a premium of around 52% to the 90 trading day average and result in BG shareholders owning around 19% of the combined group.
Shares in BG Group rose 42% in early trading when the FTSE 100 opened for business while the value of Shell's B shares fell by 3%.
Wider energy stocks were also boosted.
The merger is a response to the collapse in raw energy prices, which resulted in oil costs falling by as much as 60% last year from their June peak amid a glut in supply and weak demand.
Energy companies have been slashing costs and investment plans in response.
BG Group, a natural gas producer, was created in 1997 when British Gas demerged into two separately-listed companies, with Centrica having responsibility for the retail side of the business.
It has endured several problems in addition to weak prices including big cost over-runs on a huge gas project in Australia and major writedowns in its American and Egyptian businesses.
One of the most startling aspects of the agreement is that Helge Lund, BG's chief executive of just two months, is set to move on once the deal is completed having banked at least £20m in pay and share awards.
He became embroiled in a row over his pay package after joining the company and had agreed to slash his share award by 50% amid shareholder pressure.
The proposed combination will add some 25% to Shell's proved oil and gas reserves and 20% to production and it would make the company the second largest oil major behind Exxon Mobil.
Mr Lund said the deal "delivers attractive returns to shareholders and has strong strategic logic.
"BG's deep water positions and strengths in exploration... will combine well with Shell's scale, development expertise and financial strength."
Shell's CEO Ben van Beurden said it would make Shell the biggest player in liquefied natural gas (LNG).
It gives the company access to BG's multi-billion pound projects in Brazil, East Africa, Australia, Kazakhstan and Egypt though Mr Van Beurden admitted there could be competition issues to address.
Dr Christian Stadler, of Warwick Business School, has worked with Shell for the last 15 years.
He said the deal could be the opening shot in a new wave of mega-mergers.
"Quite a few oil companies are under cost pressure with no sense of the oil price recovering.
"Companies had got used to $100 a barrel and many need $40 to $60 to break even," he said.
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