The combined company, which will be called Honeywell but will based at the current AlliedSignal headquarters in New Jersey, will be among the 50 largest industrial conglomerates on the globe, with combined annual sales of $25bn and a stock market capitalisation of $45bn.
The friendly takeover was engineered by AlliedSignal's widely revered chairman and chief executive, Lawrence Bossidy, and is meant to protect the company from the ups and downs of business, especially in the aerospace sector.
"We will be a more diversified company," Mr Bossidy said yesterday, "which ought to help us deal with the cycles."
Mr Bossidy is set to retire next year, and the helm of the new company will then be passed to the current chief executive of Honeywell, Michael Bonsignore.
There will be some pain associated with the takeover - about 4,500 jobs will be shaved, many of them at Honeywell's current headquarters in Minneapolis.
The combination's impact will be felt extensively in the aerospace industry, in which both companies have long been important players.
In addition to being a market leader in electronic control systems - including thermostats - Honeywell is a manufacturer of avionics technology such as cockpit controls and global positioning equipment.
AlliedSignal's products include aircraft engines and collision avoidance systems. The aerospace unit of the new company will generate about $10bn in annual sales.
Both companies admitted that the issues of name and headquarters were among the most difficult to be settled in talks that began earlier this year.
On the decision to go with the Honeywell name and to jettison AlliedSignal, Mr Bossidy said: "They have a better worldwide brand than we did, so we made a concession on that point."
The deal is a triumph for Mr Bossidy, who was thwarted in his attempts last year to mount a hostile takeover of AMP, a maker of electronic connectors.
Two months ago, at the AlliedSignal's annual meeting, Mr Bossidy had hinted that his appetite for a takeover was undiminished. "I want to do something big in this company before I leave," he said.