Shares of TF1, controlled by French conglomerate Bouygues, were leaping by close to 10% at 0734 GMT, while those of M6, controlled by Germany's Bertelsmann, were up by 7.5%.
The tie-up plans will create a new French market leader with 3.4 billion euros ($4.15 billion)in revenue and Bouygues as its 30% controlling shareholder, the companies said in a joint statement late on Monday.
The announcement marked the start of exclusive negotiations, with a formal deal expected to close at the end of 2022, they said.
The combination of France's top two broadcasters promises to shake up the French audiovisual and advertising markets and is likely to draw the attention of the country's antitrust watchdog.
As of today, M6 and TF1 jointly control three quarters of France's TV advertising market.
The deal resolves a battle for M6 that began late last year, when Bertelsmann approached potential buyers for its 48% stake.
M6 shareholders will receive a 1.50 euro exceptional dividend as part of the transaction, which sees 2.1 TF1 shares exchanged for each M6 share.
Bouygues will then pay 641 million euros to acquire a further 11% of the new company from Bertelsmann, leaving the German group with a 16% holding.
The combination, which is also subject to shareholder approvals, will generate 250-350 million euros in annual synergies within three years, they also said.
($1 = 0.8200 euros)
(Reporting by Mathieu Rosemain, editing by Louise Heavens)