A $US34.6 billion ($A39.7 billion) cash and stock transaction has been recommended by both companies' boards and would see Baker Hughes shareholders owning about 36% of the combined company and having three representatives on the expanded 15-member board.

Baker Hughes shareholders will receive a fixed ration of 1.12 Halliburton shares plus $19 cash for each of their Baker Hughes shares. This represents a 40.8% premium to the stock price of Baker Hughes the day before the initial merger offer was made.

"We are pleased to announce this combination with Baker Hughes, which will create a bellwether global oilfield services company and offer compelling benefits for the stockholders, customers and other stakeholders of Baker Hughes and Halliburton," Halliburton CEO and chairman Dave Lesar said.

"The transaction will combine the companies' product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers, creating a Houston-based global oilfield services champion, manufacturing and exporting technologies, and creating jobs and serving customers around the globe.

"The stockholders of Baker Hughes will immediately receive a substantial premium and have the opportunity to participate in the upside potential of the combined company.

"Our stockholders know our management team and know we live up to our commitments. 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."

The synergies mentioned by Lessar are expected to come from operational improvements in North American operations, personnel reorganisation, real estate, corporate costs, research and development optimisation and other administrative areas.

Halliburton will fund the cash portion of the merger through a combination of cash on hand and fully committed debt financing.

The company has agreed to divest businesses that generate up to $7.5 billion in revenues, if required by regulators, however it remains confident that it will end up getting rid of less.

The services giant will also pay a $3.5 billion fee if the transaction terminates due to a failure to obtain required antitrust (completion law) approvals.

The Wall Street Journal reported that one of the biggest challenges facing the merger was the creation of duopolies in at least four different business areas.

These business areas, along with the influence of Schlumberger, control between 70% and 90% of the market for things like well logging and drill bits according to the newspaper, which referenced RBC Capital Markets analyst Kurt Hallead.

The transaction is expected to close in the second half of 2015.