Under the all-scrip deal, ASG shareholders will receive 0.85 Allied Gold shares for every share held, implying a value of C40.3c per ASG share, based on the exchange rate and the closing price of Allied shares yesterday.
The offer is a 9% premium to ASG's closing price on Monday and is 35% higher than ASG's 30-day volume weighted average price.
Overnight in Toronto, ASG shares jumped 11% to 41c.
The Australian-incorporated company owns the Gold Ridge project on Guadalcanal in the Solomon Islands.
A former producing gold mine, ASG is redeveloping the project with first gold production targeted for early 2011.
ASG chairman Stephen Everett said the offer provided enhanced development prospects for Gold Ridge.
"With recent volatility in financial markets, it has been difficult for ASG as a single project company to raise the necessary financing to accelerate the redevelopment of the highly promising Gold Ridge project," he said.
Allied Gold executive chairman Mark Caruso said the joining of the two would create a company with 2.2 million ounces of gold reserves, 6.7Moz of resources and a production profile of 300,000oz per annum by the 2013 financial year.
ASG's independent directors support the bid and Gryphon Partners has deemed the offer fair.
Resource Capital Fund III, ASG's largest shareholder with a 49% stake, also supports the offer.
Allied Gold and RCF have entered into an agreement whereby RCF will accept the offer for 19.9% of its holding.
In the absence of a superior proposal, RCF will accept the offer for its remaining stake within three days of the offer being formally made to ASG shareholders.
Expected to close around mid-November, the offer is subject to Allied Gold receiving acceptances for 50.1% of the shares in ASG.
"Given the unanimous support of the ASG board for the transaction and the pre-bid agreement entered into with RCF, a 49 per cent shareholder in ASG, we are extremely confident Allied Gold will achieve majority ownership of ASG," Caruso said.
If the bid is successful, Allied will seek a listing on the Toronto Stock Exchange in addition to its listings on the Australian Securities Exchange and London's Alternative Investment Market.
Shares in Allied Gold gained 5% or A2.5c to 53.5c this morning.