Oil field services firms Halliburton Co. (NYSE: HAL) and Baker Hughes Inc. (NYSE: BHI) announced Monday morning that the two companies have reached a definitive agreement under which Halliburton will acquire Baker Hughes in a cash and stock transaction valued at $34.6 billion.

The companies’ boards have agreed on the following terms: Baker Hughes stockholders will receive 1.12 shares of Halliburton stock plus $19 in cash for each Baker Hughes share they own for a total payment of $78.62 per share. The price is a premium of nearly 41% to Baker Hughes’ closing price on October 10, which the press release notes as the day prior to Halliburton’s initial offer for Baker Hughes. That is a full month before last week’s first report of a possible deal.

Halliburton said it will finance the deal with cash on hand and fully committed debt financing. The company has also agreed to divest businesses that currently generate up to $7.5 billion in annual revenues if required to do so by regulators. Halliburton also has agreed to pay a $3.5 billion break-up fee if the deal fails to get regulatory approval. The deal is expected to close in the second half of 2015. Baker Hughes stockholders will own about 36% of the surviving company.

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The merged company will retain the Halliburton name and the Baker Hughes name will disappear. Halliburton CEO Dave Lesar will continue as chairman and CEO of the surviving firm, and the board of directors will expand to 15, of which three will come from the Baker Hughes board.

The companies noted, as we did last week, that 2013 combined pro forma revenues for the two firms is $51.8 billion and that combined they employ 136,000 people (below our count of 141,000 which was taken from their last annual reports). Halliburton’s CEO also noted:

We know how to create value, how to execute, and how to integrate in order to make this combination successful. We expect the combination to yield annual cost synergies of nearly $2 billion. As such, we expect that the acquisition will be accretive to Halliburton’s cash flow by the end of the first year after closing and to earnings per share by the end of the second year. We anticipate that the combined company will also generate significant free cash flow, allowing for the return of substantial capital to stockholders.

Halliburton expects the synergies to come from “operational improvements, especially North American margin improvement, personnel reorganization, real estate, corporate costs, R&D optimization and other administrative and organizational efficiencies.” Our guess is that “personnel reorganization” will bear the brunt of the cost cutting, as layoffs almost always do in these sorts of deals.

The combined firm will top industry leader Schlumberger Ltd. (NYSE: SLB) in revenues, but the combined market cap of Halliburton will still trail Schlumberger and profits will also fall short, at least until the synergies kick in.

Halliburton’s shares traded down about 3.2% in Monday’s premarket session, at $53.30 in a 52-week range of $47.60 to $74.33.

Baker Hughes traded up nearly 16%, at $69.32 in a 52-week range of $47.51 to $75.64.

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