European defence and aerospace group EADS and German engineering firm ThyssenKrupp are to buy Atlas Elektronik from the UK's BAE Systems.
Atlas Elektronik is a specialist maritime electronics business
German-based Atlas, which specialises in sonar equipment, is being sold for 145m euros (£99m) in an all cash deal.
BAE Systems, Europe's largest defence group, first proposed the sale of Atlas back in August.
It and EADS work together at airline manufacturer Airbus, which is 80% owned by EADS and 20% by BAE Systems.
The sale is still subject to regulatory approval and should be concluded sometime next year.
ThyssenKrupp and EADS will own 60% and 40% respectively of Atlas.
In 2004, Bremen-based Atlas had sales of 292m euros, and a pre-tax profit of 9.3m euros.
French defence group Thales was also initially interested in buying Atlas.
"With this step, we are making a significant contribution to the consolidation of the German naval system business, thus strengthening our position in the national and European consolidation process," said Stefan Zoller, chief executive of EADS Defence and Security Systems.