Associated Newspapers and The Irish Times, joint owners of Metro Ireland, and Independent News & Media, owner of Herald AM, have agreed to the deal, which will see each shareholder retaining one third of the merged business.
Metro Sweden, which was a 10% stakeholder in Metro Ireland, will not have a shareholding in the new entity.
The three groups claim the proposed new free newspaper will boast a 70,000-plus daily distribution across the greater Dublin area.
Associated Newspapers said the merger, which will be subject to approval by the country's Competition Authority, would be backed by shareholders' increasing investment into the Metro Herald.
Steve Auckland, chairman of Metro Ireland and managing director of Associated Newspapers' free division, said advertisers would benefit "from access to a young, urban audience."
A merger between Metro Ireland, which launched in 2005, and Herald AM, which also launched in 2005, has long been predicted.
Due to the merger being subject to the Competition Authority, neither party could disclose further details.
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