The group headquarters will be in the Paris area, with half of the shares in the new entity owned by Siemens.
Alstom CEO Henri Poupart-Lafarge, who will run the merged company, told reporters Wednesday that the deal would ultimately create jobs and innovation. Siemens will receive newly issued shares in the combined company representing 50 percent of Alstom's share capital on a fully diluted basis.
Combining the two assets would give Siemens and Alstom more heft to confront growing competition from China.
"We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term", said Siemens Chief Executive Joe Kaeser.
"It is not that often that we see an M&A scenario that we like, and one that really is a "win-win" - but there is scope for that to be the case here", Ben Uglow, an analyst at Morgan Stanley, wrote in a note.
The French government acquired its option on the Bouygues stake as part of a deal that helped Alstom reject Siemens as a buyer for the power business in favour of GE.
While the TGV was still the fastest railed vehicle after a 357.2 miles per hour run in 2007, the loss confirmed the pressure facing Alstom not just in the shape of Siemens but also from increasingly export-oriented Asian manufacturers and Canada's Bombardier Inc., which had become the largest western train-maker following the 2001 purchase of Daimler AG's Germany-based Adtranz arm.
Siemens Alstom, which will have about 62,000 employees, will become the second-largest maker of rail cars and locomotives after China's CRRC Corp.
The surprise Alstom transaction will do just that, though a test will come when the new company has to rationalize its lineup and production base for the next generation of rolling stock, she said.
Recent orders from Macedonia, the United Kingdom and the US for CRRC have caused growing concern at Alstom and Siemens. Kaeser announced the goal to lift the French company's profit margin before taxes and interest from 5.8 percent to Siemen's level of 10 percent. "The global marketplace has changed significantly over the last few years A dominant player in Asia has changed global market dynamics and digitalization will impact the future of mobility".