The newly consolidated business will be led by Steve Baker. Initiative and Universal McCann will take a 50% stake each.
The new business starts with combined billings of approximately €100m a year and is designed to boost Mediabrands' scale to better enable it to compete with group offerings from Aegis and GroupM.
It is also understood that the merger has led to a number of redundancies within both companies.
Magna Ireland declined to comment.
The Magna name has been around for the past six years – initially as a less formal trading alliance between Universal McCann, Initiative and AFA O'Meara.
The move comes as both Initiative and Universal McCann battle tough market conditions throughout Europe.
Gary Birtles, chief executive of Initiative in the UK, said there are no plans to replicate the move in the UK, although stressed the two Mediabrands' agencies already "work closely together, and will continue to do so".