Danish engineering company Danfoss announced on Friday a bid worth 1.04 billion euros (9.7 billion kroner, $1.341 billion) for Finnish air conditioning equipment firm Vacon which, it said, was recommending its shareholders to accept.
The two groups said they aimed to become a "global player" in the air conditioning (AC) drives market.
Vacon makes drivers which control electric motors.
Vacon chief executive Vesa Laisi said in a joint statement that "customers will benefit significantly from the two companies joining forces" as the deal will "bring even more competitive, innovative, and attractive AC drives to the market".
Danfoss chief executive Niels Christiansen said in the statement: "By creating this new drives business we can ensure a strong long-term growth trajectory."
Danfoss specialises in refrigeration, air conditioning and heating.
In 2013, Vacon, which is listed on the Helsinki Stock Exchange, reported revenue of 403 million euros.
Vacon has about 1,600 employees in 30 countries, whereas Danfoss employs about 22,500 people in 20 countries.
In 2013, the Danish group posted sales of 4.5 billion euros.