The "merger of equals", as the companies called it, has a combined equity value of $875 million, and is slated to close in the fourth quarter, the parties said.
Under the deal’s terms, VanceInfo and hiSoft shareholders will each own 50 per cent of the combined company.
hiSoft will be the surviving listed company in the merger, and its shares will continue to be listed on the Nasdaq. A name for the new combined company will be announced later.
According to the agreement, each outstanding ordinary share of VanceInfo will be exchanged for the right to get one common share of hiSoft, and each American depository share of VanceInfo will be swapped over for the right to receive one American depository share of hiSoft.
Prior to merging, hiSoft will undertake a share consolidation so both companies will have the same number of outstanding and American depository shares when they merge.
hiSoft provides outsourced information technology and research and development services, primarily to U.S. and Japanese companies.
VanceInfo is also an information technology service provider and offshore software development firm in the People’s Republic of China.
The merger will create a combined company with expected 2012 sales of over $670 million, the parties said, becoming the largest China-based offshore IT services provider.
hiSoft’s chief executive, Tiak Koon Loh, will take the helm of the combined company, while VanceInfo’s founder will become non-executive chairman.
The new entity's board members will consist of four directors selected by VanceInfo and four directors chosen by hiSoft.
"The combined company will be a clear market leader in serving domestic and offshore customers with the largest resource base, most comprehensive breadth of IT services capability and the most balanced geographic customer profile,” Loh of hiSoft said in a statement.
The company will employ more than 23,000 people across 13 locations in China, and 14 further locations globally.
Both parties have identified potential cost synergies, which are expected to reach two per cent of combined revenues 18 months after the deal’s close.
The pair said they are developing an execution plan and expect the deal to be accretive to earnings within the first year of the merger.