In a statement to the Australian Securities Exchange on Monday, the companies said M2's board agreed to the offer of 1.625 Vocus shares for every M2 share in a deal that would create Australia's fourth-largest internet provider.
The deal, announced before the start of trading, represents a 25 percent premium to M2's latest closing price and a reversal of fortunes for the Melbourne-based company after it lost out in a A$1.6 billion ($1.1 billion) bidding war for another rival, iiNet, in May.
While former national carrier Telstra dominates the Australian telecoms and internet market, a host of smaller rivals are jostling for exposure to a government-led A$40 billion national broadband network which aims to bring high speed internet to all Australians by 2020.
"Our ability as a merged company to capture future growth opportunities in Australia and New Zealand will be significantly enhanced," M2 Chairman Craig Farrow said in the statement.
The statement said the deal would give the companies a combined annual revenue of about A$1.8 billion and earnings before interest, tax, depreciation and amortization of about A$370 million, not including annual savings of about A$40 million within two years.
The companies said M2 shareholders will receive a scheme booklet in late 2015 and vote on the deal in early 2016.
Vocus was advised by Credit Suisse and M2 was advised by Goldman Sachs, they added.