Bosses at Irn-Bru confirmed talks were
in their "early stages" after the company approached its Essex-based rival about a potential tie-up.
AG Barr, which has its main base in Cumbernauld, has produced Scotland's top selling soft drink – known as our other national drink – from a secret recipe for more than 110 years.
Both firms said a merger deal would create one of the leading soft drinks companies in Europe, with other brands including the Britvic products Robinsons, J2O and Fruit Shoot. AG Barr also makes Tizer and Rubicon.
It has already been agreed that Britvic shareholders will own 63% of any new company, and AG Barr shareholders 37%.
Shares in both companies fizzed today, with Britvic worth £890million after a 12% rise, while AG Barr went up 4%, valuing it at £500m.
A statement by Britvic said: "Discussions are at an early stage and, whilst there can be no certainty at this stage that such discussions will conclude successfully, agreement has been reached with respect to certain key aspects of the merger."
AG Barr's chief executive, Roger White, who joined the company in 2004 and became the first non-family boss, would assume the same role in the merged group.
John Gibney, chief financial officer at Britvic, would also keep his position.
Gerald Corbett, chairman of Britvic, would chair the board of the combined entity, while Ronnie Hanna, chairman of AG Barr, would become deputy chairman.
In 2009, Robin Barr ended his 31-year tenure as chairman of AG Barr. However, he remains on the company's board as a non-executive director and is one of just three people to know the formula of 32 ingredients used in the drink.
The deal could have implications for the workforce.
AG Barr employs 950 people throughout the UK. Five hundred of these are based in Scotland, the majority in Cumbernauld.
Barr's business started in 1875 and it began selling "Iron Brew" in 1901.
When Robert Barr took over the firm in 1947, he renamed the drink Irn-Bru after worries about new food labelling regulations – the drink did contain iron but was not brewed.
Earlier this year, it was announced profits at the company had taken a slight hit, but it added it still anticipated a 4.5% year- on-year rise in sales to about £130m.
AG Barr is understood to be continuing with a £41m production and warehouse operation in Milton Keynes after obtaining planning approval for the project.