The date of merger was not announced, but may be determined by the registrar of companies.
Associated Hotels share was up 10.25 on the news to 77.00 by mid-day while Ceylon Hotels also gained 9.50 rupees to 58.00, after gaining as much as 14.50 earlier in the day
CHC has in issue only 3.0 million shares while AHCL has 17.8 million shares.
The companies will merge through a share swap where an Associated Hotels shareholder will receive 47 CHC shares for every 34 Associated Hotels shares.
Perigrine Private Limited shareholders will get 33 Ceylon Hotels shares for every 10 shares, the company said.
The illiquid shares of AHCL are being pushed up by retailers, brokers said.