The acquisition is going to create a massive European energy giant. The deal is one of the biggest deals for the sector in the last decade and it comes at a time when the oil prices are falling sharply.
The deal still needs to be approved by both firms' shareholders. The deal will see BG Group shareholders get 383 pence ($5.70) in cash, plus 0.4454 Shell B shares for each BG share.
As part of the deal, BG shareholders will own around 19% of the combined group that will have a market capitalization of about $240 billion, which is going to be twice as big as British oil major BP but still smaller than world's largest oil company Exxon Mobil, which has a market capitalization of $360 billion.
The announcement sent the London-listed shares of BG jumping 38% higher while Royal Dutch Shell's stock price fell over 2% on Britain's FTSE 100 index, which also saw broad-based gains on the news.
"The result will be a more competitive, stronger company for both sets of shareholders in today's volatile oil price world," Shell chairman Jorma Ollila said in a statement.
According to Shell, the new group would add 25% to its proved oil and gas reserves, 20% to production and that the deal would provide it with new, undeveloped oil and gas projects, particularly in Australia, Brazil, and East Africa.
Helge Lund, BG's chief executive, said the offer delivers "attractive returns to shareholders and has strong strategic logic."
Shell has expressed confidence the deal would produce annual financial gains of around $2.5 billion.