The Air France-KLM offer values the airline at 139 million euros ($216 million), far less than expected, based on a share swap of 1 Air France share for every 160 Alitalia shares. The Franco-Dutch carrier also said it will pay euro608 million ($946 million) for convertible shares.
Air France said it will inject euro1 billion ($1.56 billion) in capital once the deal is complete.
Alitalia's board issued a statement accepting the offer after a meeting that went some 16 hours into early Sunday. Air France said it was "happy" with Alitalia's decision.
Air France has said it wants to have union approval before the deal is completed. It also must be approved by the Italian government, which is selling its 50 percent share, as well as the stock market regulator and EU competition authorities.
Air France said it expected to have government and regulatory approvals within the first half of 2008.
Air France said it plans to relaunch Alitalia with an industrial and restructuring plan that will allow the Italian carrier "to rediscover the means of its development and to consolidate its status as a national leader." Alitalia will maintain its national identity within the Air France-KLM group, the carrier said in a statement.
Air France said it expected to be profitable by 2009.
Alitalia has been losing euro1 million ($1.56 million) a day, and its cash reserves were down to just euro282 million ($439 million)at the end of January, nearly a 25 percent drop from a month earlier.
The outgoing center-left government of Romano Prodi has been trying for more than a year to sell Alitalia. It's decision to enter exclusive talks with Air France-KLM has been met with opposition by unions concerned about jobs and backers of Milan's Malpensa airport, which would lose its status as a hub. Air France intends to maintain just one hub for Alitalia, at Rome's Leonardo da Vinci airport.
Opposition leader Silvio Berlusconi, who is favored to win national elections next month, recently said he could accept an Air France-KLM purchase of Alitalia if the Italian carrier maintains its national identity, backing down from his opposition to the deal.
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