Rio Alto's stock gained 34 cents to $3.62 on the Toronto Stock Exchange shortly after the market opened while Tahoe shares dropped $1.49 to $16.15.
Tahoe's friendly offer valued Rio Alto at about C$1.3 billion, based on Friday stock prices for the two companies.
Under the proposal, Rio Alto shareholders will receive 0.227 of a Tahoe share and one-tenth of a cent cash per share, making the offer worth about $4 per share based on Tahoe's share price before the deal was announced.
Rio Alto shareholders will own about 35 per cent of the combined company.
If a competing offer emerges, Tahoe will have an opportunity to match its rival's bid and would receive a $57.6 million termination fee under certain circumstances.
The combined company would produce gold in Peru from Rio Alto's established La Arena mine and the Shahuindo gold project that's scheduled to begin production next year.
Tahoe's main holding is the Escobal silver mine in Guatemala, which has been in commercial productions since January 2014.
The boards of both companies are supporting the proposed deal, which requires approvals from shareholders of both companies.
Goldcorp Inc. (TSX:G) has about 39 per cent of Tahoe's shares and has agreed to support the deal.
The companies anticipate the deal will close by early April.