The plan is to create a soft drinks giant headed by AG Barr chief executive Roger White but 63%-owned by shareholders in Britvic, maker of Robinsons and Tango.
Investors rewarded both companies. Cumbernauld-based AG Barr, whose move was described as "opportunistic" by one analyst, saw its stock rise 34.6p or 8.3% to 459p, valuing it at £526 million.
Meanwhile, shares in Britvic, which has been under pressure after recent product faults with its Fruit Shoot brand, closed up 41.3p, or 12.6% at 369.9p, to leave it worth £894m.
A spokesman for AG Barr said: "A merger would create one of the leading soft drinks companies in Europe, with a strong portfolio of market leading brands.
"The combination would have compelling industrial logic and represents an opportunity for both companies to enhance their industry position, and achieve significant synergies and shareholder value."
The plan is to draw the board of directors equally from each company.
Gerald Corbett, chairman of Britvic, would become chairman with Ronnie Hanna, chairman of AG Barr, deputy chairman.
John Gibney, finance director of Britvic, would hold the same post in the combined company, serving under Mr White.
Another six non-executive directors, three each from Britvic and AG Barr, will also be appointed.
It is not known whether they would include Robin Barr, who in 2009 ended his 31-year tenure as chairman of AG Barr but remains on the company's board as a non-executive director.
Analysts think the combined group could make savings of some £150m by sharing distribution and reducing to one head office.
The companies have not disclosed where their headquarters would be.
Canaccord Genuity analyst Wayne Brown said: "The AG Barr management team have a strong track record and would add significant strength to Britvic from both an operational and financial performance perspective."
Britvic's income of £1.3bn is nearly six times that of AG Barr's. The company, which recently moved from Essex to Hertfordshire, receives around 40% of its revenues from making Pepsi in the UK and Ireland.
One of the uncertainties of the deal is whether PepsiCo would exercise a change of control clause to end its bottling deal with the company.
AG Barr and Britvic have both suffered from poor weather this year.
Britvic has had a particularly tough time. In July, it had to recall bottles of its Robinsons Fruit Shoot due to faulty caps in a move that could cost it £25m.
Merging with its far larger peer would give AG Barr access to Britvic's strong position in the off-trade.
AG Barr is currently more focused on independent convenience stores.
In recent years it has sought to expand south of the Border by marketing its Irn-Bru brand in northern England and buying south of England-focused exotic juice manufacturer Rubicon.
It is investing £41.5m in a new manufacturing plant in Milton Keynes to give it greater reach into the south of the country.
It could accelerate this process by using Britvic's distribution reach in the south.
But Britvic also has a strong international presence with a business in France, franchises in Australia and the United States, and it exports to over 50 countries.
Britvic and AG Barr are required to announce their intentions by October 3.