Both Philips and Lucent Technologies, which was spun off from AT&T last year, are the leaders in their own markets in equipment such as telephones and answering machines.
The new company, to be called Philips Consumer Communications, will develop and sell cellular telephones, pagers and related communications products. Both sides hope to conclude the deal by 1 October.
While the new company is to be based in New Jersey, close to the headquarters of Lucent, it will be 60 per cent owned by Philips and 40 per cent by Lucent. Officials said the ownership structure directly reflected the respective sales revenue of the partner companies.
In Europe, Philips has a $1.4bn business in selling the products. Lucent's revenue on the same products from the US market comes out at $1.1bn. Officials said talks on a possible merger between the divisions began about three months ago. They said the main purpose was to provide the muscle for expansion into world markets, including Japan and Latin America.
"There are many markets in Latin America and Asia where we can offer those products in a short period of time," said Michael McTighe, managing director of Philips' telecom products division. Of the Japanese market, he said: "Next year we will attack there."
The news of the union was warmly greeted on Wall Street.