The deal will create one of the largest derivatives brokers in Europe, with a market value of pounds 91m and more than 1450 staff. Most of the job losses will hit the combined group's operations in London, where more than 710 staff are employed.
Michael Spencer, chief executive of Intercapital, will become chairman and chief executive of the enlarged group, to be called Intercapital plc. Five out of the other six seats on the board will be filled by Exco directors.
Mr Spencer said the deal was driven by pressure for consolidation within the money broking sector in the run-up to European monetary union. Where forty brokers existed two years ago, there are 20 now.
The advent of European monetary union has increased pressure on money brokers to consolidate as the need for specialist brokers, dealing in each of the member countries' currencies, disappears.
Emu was also likely to boost demand for interest rate swaps, one of Intercapital's strengths, Mr Spencer said. "Specialists will disappear and people will want one firm to deal with."
The deal will be financed by an offer to Intercapital of 231 million new shares in Exco, the proceeds of which will be used to buy Intercapital. Mr Spencer and his family, who founded Intercapital in 1986, will retain their 42 per cent stake.
The takeover brings to an end a difficult period for Exco, a former subsidiary of the British and Commonwealth group. The company has been battered by rising wage demands and falling commissions for derivatives trades.
In the six months to June, Exco saw its turnover plunge more than 20 per cent to pounds 80.5m. The company recorded a loss before tax of pounds 0.9m against a profit of pounds 5.4m in the first half of 1997.
Mr Spencer said most of the job losses would come from the London operations of the combined group. He added: "The overwhelming majority of the pain that Exco had to go through is already done. I would like to think we are buying at the bottom."