Atos Origin has acquired Siemens IT division for €850m (£720m) to create a company with sales of around €8.7bn and 78,500 employees worldwide.
The global workforce of Siemens IT services division is expected to be reduced by 1,750.
Thierry Breton, CEO of Atos Origin, said the deal will create a powerhouse in IT and hi-tech transactional services in Europe.
"After the merger we will be well represented across Europe, we'll be the only European company with such [extensive] presence.
"IBM will become our main competitor [for managed services] and we are committed to becoming number one for cloud computing," he said.
Peter Löscher, CEO of Siemens, said the partnership would position the new company to make a play for big global contracts.
Siemens had recently separated out its IT division. Breton said the company has been in discussion with Siemens for six months about the deal.
Jean-Louis Bravard, director at consultancy Burntoak Partners, said that European suppliers are now taking on the US dominated tier of service providers.
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"The deal's financial structure leaves Atos fully capable of considering further acquisitions within a very short period of time," he added.
Capgemini has also announced a takeover of German IT-Services Provider CS Consulting GmbH.
Rheinhard Clemens, CEO of German-based company T-Systems, recently said mergers in the European ICT market would be necessary for companies to compete with the big American players. That is what's needed in order to survive in the international battle with American companies - especially when you look at the cash pool of the likes of IBM, he said.