The deal will also see Repsol take on assumed debt of US$4.7 billion, with the Spanish company saying the proposed transaction had been unanimously approved and recommended by the boards of directors of both companies.
Repsol's offer for Talisman equates to about US$8 per share, which Repsol said represented a 24% premium over the average share price of the last three months and was above Talisman’s closing price of US$4.29 in New York on Friday.
Respol will fund the purchase mainly through its existing cash reserves obtained from the US$6.3 billion recovery of value from YPF following its expropriation by the Argentinean government in 2012.
It said the deal would allow it to bring forward and surpass its exploration and production goals and consolidate the upstream business as its main growth vector in coming years
It expects the acquisition of Talisman to increase its output by 76% to 680,000 barrels of oil equivalent per day, with the newly merged group being present in more than 50 countries and employing more than 27,000 people.
It will also see Repsol's proved plus probable reserves increase from 2.3 billion boe to more than 3.5 billion boe.
“This is a transformative and exciting deal which will make us one of the world’s most significant players and which will allow us to grow as a company and reinforce Repsol as a solid and competitive integrated player," Repsol chairman Antonio Brufau said.
“Talisman is an excellent company which will add its experience and proven track record in production assets that will add to that of Repsol in deep-water exploration. This will significantly boost joint development.”
Repsol chief executive Josu Jon Imaz said the deal came following an analysis of more than 100 companies and assets worldwide.
"In every area, Talisman has always been the best option, because of the excellent quality of its complementary global assets,including its talent," he said.
"With Repsol’s ability to support the growth of these assets there is much value to be realised - it is a win-win situation.”
The deal will be completed with a plan of arrangement, and will require the approval of Talisman shareholders which will be sought at a special meeting to be held before 19 February next year.
It is also subject to the approval of the Canadian courts and the two companies are aiming to complete the deal by mid-2015.
Repsol already has a presence in Canada, with exploration activity off the country's east coast and it is also a major partner in the Canaport liquefied natural gas facility in New Brunswick.
Canada and the US currently make up 10% of Repsol’s production and. following its acquisition of Talisman, it will allocate 30% of its capital employed to the region, totalling roughly US$15 billion.
Tuesday's announcement confirms Monday's reports that Repsol's board was meeting to discuss a bid for Talisman.
JP Morgan acted as Repsol's sole financial advisor and Bennett Jones acted as its main legal advisor.
