Technology company Invensys, whose rail arm is based in Chippenham, unveiled a £1.74 billion proposed deal to sell its rail business to German high speed train maker Siemens.
Invensys, which has been at the centre of takeover speculation in recent months, said the sale would provide money to cut its pension deficit and deliver annual cost savings of £25 million.
It employs around 1,400 people at its plant at Langley Park in Chippenham.
Shares in Invensys soared 27 per cent after the potential deal was announced, with the two groups hoping to complete the transaction in the second quarter of 2013.
Invensys, which employs 3,000 people in the UK out of a total workforce of 20,000, develops technologies for a wide range of sectors including mass transit rail networks, oil refineries and air conditioning.
The Chippenham rail arm provides high-tech software-based signalling, communication and control systems to rail networks worldwide.
Invensys rail is working on a number of Network Rail projects, including work on the Thameslink main-line route.
Wayne Edmunds, chief executive of Invensys, said the group decided to sell its rail arm because it had "limited scope" to expand the business.
He added Invensys planned to concentrate on industrial software, systems and control equipment businesses.
Siemens had been mooted as a possible bidder for the entire Invensys business earlier this year.
A spokesman for Siemens said: "Siemens sees rail automation as a highly attractive business to further invest in that offers good growth and resilient profitability.
"Invensys Rail employees and management are an important success factor to the business and we hope Invensys employees will see Siemens as an attractive employer. Our aim is to become the global leader in the rail automation market with members from both Siemens and Invensys forming the new management team.
"Siemens is a well established company in the UK with operations here for 170 years and 13,500 UK employees. We see this acquisition as strengthening our company in the UK as well as globally.
"Siemens recognises that Invensys Rail is well positioned in the UK, Spain, US and Australia where it has a strong presence and holds long-term customer relationships. This maps well on to Siemens strengths in continental Europe, China and India so there is a really good geographical fit without much overlap.
"We now enter a period of consultation with employees and the various anti-trust and pensions bodies and we expect to fully integrate the companies by the end of 2015-2016."
Invensys has suffered on the stock market after warning in January of the impact of a series of project delays, mostly involving eight nuclear reactors in China. But half-year results earlier this month showed improvements as pre-tax profits rose 5.5 per cent to £77 million.