US computer game company Activision Blizzard, which produces World of Warcraft and Call of Duty, is buying King Digital Entertainment, the creator of Candy Crush Saga.
The deal is worth $5.9bn (£3.8bn).
Activision said the acquisition would make it a global leader in interactive entertainment across mobile, console and PC platforms.
It added the combined firm would have more than half a billion monthly active users in 196 countries.
The Call of Duty series is one of the world's best selling console games, while Candy Crush Saga is among the most popular games on mobile devices.
Video game publishers are switching from the physical sale of games to digital growth as consumers move from consoles to playing on smartphones and tablets.
In a statement, Activision Blizzard chief executive Bobby Kotick said: "With a combined global network of more than half a billion monthly active users, our potential to reach audiences around the world on the device of their choosing enables us to deliver great games to even bigger audiences than ever before."
Mr Kotick told the Reuters news agency that the company wanted to broaden its reach and appeal to a larger demographic.
He said that 60% of King Digital Entertainment's players were female, and that no games console or hardware, besides a smartphone, was needed to access its games.
King Digital Entertainment has focused on a business model that allows users to play a game for free, but pay extra for additional features.
Analysis: Leo Kelion, BBC Technology desk editor
Candy Crush describes itself as the "sweetest game around" - but even so there's no guarantee that the $5.9bn (£3.8bn) takeover of King.com won't leave both investors and players with a bitter taste.
The big-budget, action-centric PC and console titles that Californian buyer Activision Blizzard is best known for are quite different to the more simple puzzle and role-playing mobile and web-based games its Stockholm and London-headquartered acquisition is skilled at making.
Furthermore, the size of the acquisition dwarfs other mega-deals in an industry already prone to consolidation.
For comparison's sake, other recent mergers include:
Microsoft's $2.5bn purchase of Minecraft's developer Mojang
Facebook's $2bn takeover of virtual reality headset-maker Oculus
Amazon's $970m acquisition of the games community Twitch
Electronic Art's $750m payment for Plants v Zombies developer PopCap
The international success of Candy Crush Saga has given it exposure to high growth markets in Asia, such as China, Japan and South Korea.
Activision's games are played on more expensive video game consoles or computers, with games costing between £20-£40.
King Digital Entertainment, which has its main offices in London and Stockholm, will continue to operate as an independent unit led by chief executive Riccardo Zacconi.
Mr Zacconi said: "Since 2003, we have built one of the largest player networks on mobile and Facebook, with 474 million monthly active users in the third quarter 2015."
We believe that the acquisition will position us very well for the next phase of our company's evolution."
Activision Blizzard is offering $18 (£11.66) in cash for each King share, and the deal is expected to boost Activision's earnings by about 30%.
King Digital Entertainment floated on the New York Stock Exchange in March last year with the original share price being offered at $22.50 (£14.60).
In early trade in New York its share price went up 14% to $17.72.
Candy Crush Saga, which was first launched on Facebook and smartphones in 2012, caught the public imagination and still makes up about a third of the company's revenue.
Even though the company has produced more than 200 games, including the popular Bubble Witch and Farm Heroes, it has yet to repeat the success it found with Candy Crush Saga.
"Candy Crush Saga was such a massive global hit, it's a very difficult challenge to replicate that even if they release sequels or expansions to the original theme or release new titles," said Piers Harding-Rolls, Head of Games at IHS Technology. "The share price reflects that."
"It's a big move by Activision who have gained access to an audience that does not overlap with its existing market, particularly in Asia," Mr Harding-Rolls added.
King Digital Entertainment helped boost its number of daily active users with the launch of Candy Crush Soda Saga in late 2014, but there has been a decline in player spending on their number one game.
Analyst, Eric Opara at Edison Investment Research said the deal made sense for both companies.
"For Activision, it will provide a step-change in its penetration of the mobile gaming channel, which is the fastest growing segment of the video games market."
"For King, it offers the potential to leverage its mobile and social gaming expertise across Activision's large games portfolio and reduces its reliance on its own blockbuster games like Candy Crush," he said.
The deal is expected to be completed by the second quarter of 2016, assuming approval from shareholders and regulators.