The deal will see GE owning 62.5% of the combined group, against 37.5% for Baker Hughes shareholders, who will receive a special dividend of $17.50 a share. That one-off payment will be funded by a $7.4 billion contribution from GE, the two companies said.
The combined group will be headed by Lorenzo Simonelli, who will serve as CEO, with GE Chief Jeff Immelt and Baker Hughes CEO Martin Craighead sitting as chairman and vice chairman, respectively. The combined entity will retain the name Baker Hughes and be dual headquartered between Houston and London.
"As we go forward, this transaction accelerates our capability to extend the digital framework to the oil and gas industry. An oilfield service platform is essential to deliver digitally enabled offerings to our customers," Immelt said in the statement.
GE stock was 0.4% higher, at $29.33, in premarket trading on Monday, while Baker Hughes stock was 11.9% higher in premarket trading, at $66.20.
GE took financial advice from bankers at Centerview Partners and Morgan Stanley. It took legal advice from Shearman & Sterling. Baker Hughes was advised by bankers at Goldman Sachs and lawyers at Davis Polk & Wardwell.
The deal does not just create a global leader in equipment and services for the oil and gas industry. It also provides GE, which hails itself as the world's first digital industrial company, with an oil & gas services platform from which it can expand its efforts at digitizing the oil and gas industry.
Among other things, the Fairfield, Conn.-based firm will use Baker Hughes to widen the adoption of its GE Predix platform, which acts as an operating system for oil and gas hardware - linking on-site equipment to analytics back in the lab.
GE had oil and gas related sales of $16 billion for the 2015 year, equating to 13.7% of total group revenues, making it GE's fourth largest product segment.
Baker Hughes, the producer of the renowned Baker Hughes Rig Count, reported sales of $15.7 billion for its recent fiscal year. Some $6 billion of these sales were generated in North America, making it the largest geographic segment for the company.
But both companies have been challenged by lower levels of capital and operational expenditures within the oil and gas industry of late. For the third quarter, Baker Hughes reported that sales were down 38% year to date, while GE reported that revenue was down by 21% for the year to date.
-- James Skinner in London contributed to this report.