Hutchison Whampoa Limited (HWL), the parent company of Three, has agreed a £10.25 billion deal to purchase O2 from Telefónica.
The deal - which involves a cash payment of £9.25 billion and up to a further £1 billion in deferred upside interest sharing payments - will create the UK's largest mobile operator.
The merged company will have almost 33 million customers, taking a range of services including 3G and 4G mobile broadband.
Canning Fok, Group Managing Director of HWL, said the company is "proud" of the business built up by Three in the UK, which he described as "a market leader in mobile data".
Mr Fok described the final agreement with Telefónica as being "a major milestone" for HWL.
He said completion of the transaction is expected in 2016, once the purchase has been approved by EU and UK competition regulators.
"The combination of Three UK and O2 will create a business with unmatched scale and strength that will allow us to better compete against other operators in the marketplace," Mr Fok added.
It will enable Three and O2 to provide "even better" service and innovation to UK customers in a market that will remain fully competitive, he claimed.
David Dyson, Chief Executive of Three, said the company's leadership in mobile data, together with O2’s strength on network coverage, is "a great combination".
He claimed this will bring "very real benefits" to businesses and consumers throughout the UK.
"The highly complementary network assets will deliver market leading coverage and capacity for talk, text and data and will be well placed to satisfy rapidly growing demand," Mr Dyson added.
In a statement, O2 said its vision has always been to provide the very best customer experience.
"This deal will - subject to merger clearance - result in the creation of the most customer-centric mobile operator in the UK," the firm stated.
"We are pleased to be integral to such an exciting ambition and are confident that as a result of the deal, UK customers will benefit from greater value, quality and innovation."