The merged company will become Y&R's global digital arm, and it is understood it will be rebranded GT/VML.
Matt Anthony, the chief executive of VML, the Kansas City-based digital marketing agency, will head up the new agency.
In the UK, VML has until now only operated a small unit out of GT's office in London. Tim Seddon, GT's managing partner and Simon Milliship, who heads up VML's EMEA operations, will now report to Antony.
The impact on Saint, Rainey Kelly Campbell Roalfe/Y&R's digital arm, is unclear. However, sources say that the agency will now take a back seat on global Y&R pitches or larger pieces of business.
Talks between Y&R, VML and GT started in late autumn last year. GT was told about the merger plans in an agency-wide meeting last week, before 12 staff were put on notice of redundancy this Monday.
The merger will take effect immediately and changes will be introduced over the coming six months.
Last year, GT lost Audi, one of its most important digital ad accounts, to Bartle Bogle Hegarty. In December, Marc Giusti, GT's creative partner, quit to join Leo Burnett.
The agency still handles advertising for Microsoft, although the company has cut its global adspend by 20 per cent.