Merge Healthcare shareholders will get $7.13 per share at a premium of 31.8 per cent to Wednesday's close, the companies said.
Merge Healthcare shares were up 29.5 per cent at $7 in early trading. IBM shares were little changed at $156.78.
The equity portion of the offer is valued at $713.1 million, according to Reuters calculations based on 100 million Merge Healthcare shares outstanding as of June 30.
IBM plans to combine data and images from Merge Healthcare's medical imaging management platform with Watson computing platform's image analytics.
Cloud-based Watson computing system analyzes high volumes of data, understands complex questions posed in natural language and proposes evidence-based answers.
The deal is IBM's third major health-related buy since launching its Watson Health unit in April.
© Thomson Reuters 2015