AGL shareholders will get $66 for every share held, a 38 percent premium to the stock's Friday close.
The companies said in a release announcing the agreement that AGL would become a subsidiary of Southern. The transaction has an enterprise value of approximately $12 billion, including the total equity value of about $8 billion.
The combined entity will create the "leading" U.S. electric and gas utility, the companies said.
—CNBC's Everett Rosenfeld contributed to this report.