Ericsson, the world's top maker of mobile phone network equipment, said the deal would help it to supply telecoms firms providing broadband Internet and services in the home, office or on the move.
Marconi, which nearly collapsed when the Internet bubble burst in 2000, rebuilt its business around transporting voice and data over medium to long distances via optical switches. It was thrown into turmoil again in April when it lost a contract from its principal client BT.
Ericsson, meanwhile, dominates global sales of radio access equipment. Both firms have come a long way since Italian Guglielmo Marconi sent his first wireless message and Lars Magnus Ericsson began an electro-mechanical repair shop in 1876.
"The acquisition of the Marconi businesses has a compelling strategic logic and is a robust financial case," said Ericsson Chief Executive Carl-Henric Svanberg.
Svanberg said Ericsson would need to reduce the 6,671-strong workforce it was taking from Marconi by over 1,000 people.
Ericsson shares were up 1.9 percent at 26.5 crowns by 1340 GMT, while Marconi climbed 4.13 percent to 365-1/2 pence. Ericsson shares are up 25 percent this year, outperforming the 12 percent higher DJ Stoxx Technology index, while Marconi shares have dropped 35 percent.
Ericsson said most of the cost of the deal was for intangibles such as brands, trade marks and patents, showing the value of the Marconi name despite having fallen on hard times.
In pounds sterling, the purchase price was 1.2 billion, of which Marconi said it would return 577 million to shareholders. About 185 million will go to meet the firm's pension deficit, and Marconi is setting aside another 490 million in an escrow account to meet future pension-related needs. Several Ericsson rivals such as Siemens, Alcatel and Chinese newcomer Huawei were also rumoured to be interested in Marconi.
Formerly the GEC industrial conglomerate, Marconi only survived the Internet bust when creditors forgave 4 billion pounds ($7.1 billion) worth of debt in return for 99.5 percent of the company. It relisted its shares in May 2003 with a market value of about 590 million pounds.