Siemens did not give a price on the sale, but said it would face a pretax charge of 350 million euros ($429.5 million). Siemens also agreed to acquire 50 million euros ($61.4 million) worth of new BenQ shares as part of the deal.
The decision to sell the unit outright came despite predictions that the Munich-based company would form a joint venture. But Chief Executive Klaus Kleinfeld called the deal one that would keep customers, workers and stockholders happy.
"With this partnership, we have found a sustainable perspective for our mobile phone business," he said.
BenQ is Taiwan's biggest maker of mobile phones, selling them under its own name in China. The company, spun off from electronics company Acer Inc. in 2001, also manufactures phones for Motorola and NEC Corp.
Eric Yu, BenQ's chief financial officer, said the takeover would help the company reach more than $10 billion (8.14 billion euros) in annual revenue.
"This new mobile phone business is targeted to break even next year, and we expect the takeover to generate cost savings of 275 million euros ($337.8 million) to 520 million euros ($638.8 million) in 2006," he said.
Regulatory agencies in Europe and BenQ's shareholders still must approve the deal. Siemens expects the sale to be completed by the beginning of the fourth quarter.
Shares of Siemens rose 3 percent to 61.90 euros ($76.04) in afternoon trading in Frankfurt. BenQ shares had closed down 2.7 percent to 32.50 Taiwanese dollars (85 euro cents) in Taipei.
Siemens said in April that it planned to spin off and sell a majority stake in its cell phone unit, which reported a loss of 138 million euros ($169.35 million) in the second quarter.
The company has endured poor sales and has steadily lost market share, falling to just 5.5 percent of the global market at the end of March, according to research firm Gartner Inc., down from 8 percent last year. The company is behind Nokia Corp., Motorola Inc. and Samsung Corp., according to Gartner's ratings.
BenQ will use the Siemens brand for as long as five years while the German company will keep hold of its cordless phone business.
"From the end of September, all the mobile phones we sell in Europe will be BenQ Siemens," BenQ Chairman Lee Kun Yao said. "But the original Siemens mobiles will still be sold for another 18 months."
BenQ President Sheaffer Lee said the company's mobile phone shipments this year would likely exceed 20 million units, including Siemens' shipments in the October-December period. That is more than double BenQ's previous estimate of 10 million units.
Under the terms of the deal, BenQ will oversee the unit's labor agreements. Siemens now employs some 6,000 workers in the unit, most in Germany. The unit's headquarters will remain in Munich.