The two exchanges will keep their respective brands but the merger will combine the strengths of the resource-rich Australian bourse with Singapore's more international profile and strong links to the booming China market.
A joint statement said the deal would create an expanded platform for global customers to exploit opportunities in the Asia-Pacific region, the driver of the world's recovery from its worst recession since the 1930s.
The takeover bid, expected to be completed in the second quarter of 2011 subject to regulatory approval, values the ASX at 48 Australian dollars a share, a premium of nearly 40 percent on the last traded price.
Magnus Bocker, the SGX chief executive who will become the CEO of the combined group, said that "in 2020, in less than 10 years from now, nearly half of the global GDP will be in Asia-Pacific."
"It's an opportunity that we cannot let go," he added in a news conference.
In terms of total number of listings, the ASX-SGX will overtake Tokyo to become the second largest listing venue in the Asia-Pacific region after Bombay, offering more than 2,700 companies from over 20 countries including 200 from Greater China, the joint statement said.
The merged bourses will also offer access to the largest institutional investor base outside the United States, with combined assets under management estimated at 2.3 trillion dollars including money from sovereign wealth funds.
"There's no doubt that this is a landmark combination. We're trying to act ahead of the curve, be proactive in a world of change quickly," Bocker said.
The Wall Street Journal said the merger could create a roughly 1.9 trillion US dollar market.
"At the end of the day, this combination is not just about cost synergies. It's really about strategically making us a much stronger exchange together, and positioning us to grow into Asia," said Seck Wai Kwong, chief financial officer of SGX.
The deal looks likely to face some regulatory questions in Australia as Singapore's government is a major shareholder in SGX, but bourse officials did not expect major obstacles.
"I don't think we would have announced it if we didn't believe that the approvals would be forthcoming," said Robert Elstone, managing director and chief executive of ASX.
Australian Competition and Consumer Commission (ACCC) chairman Graeme Samuel said "I think it's a matter between the Singapore exchange and the Australian exchange and I can't see that raising competition issues for us", according to public broadcaster ABC.
The announcement comes as the ASX is about to lose its long-held monopoly in Australia after the government gave the green light for rival share exchanges to set up.
Former ASX chairman Maurice Newman said the Australian government should not be concerned as the deal is driven purely by commercial interests.
"They have opportunities to draw in more play from Asia, from China specifically," he told ABC.
SGX chairman-elect Chew Choon Seng will likely become the non-executive chairman of the merged entity, while ASX chairman David Gonski is expected to become deputy chairman.
The combined group will have 1,100 employees and an international board with 15 directors from five countries.