Gambling giant Ladbrokes Coral is in "detailed" talks over a takeover by online rival GVC over a deal that could value the group at up to £3.9bn.
Under the proposals, GVC – which owns the Bwin and Sportingbet brands – would hold 53.5% of the combined group.
Ladbrokes Coral became the UK's biggest High Street bookmaker following last year's merger of Ladbrokes and Coral.
The maximum price GVC will pay will depend on the outcome of the government's review of gaming machines.
Ladbrokes Coral shares jumped 23% on news of the talks, while GVC's were up by 4%.
Ladbrokes Coral brands:
- Ladbrokes, Coral, Gala Casino, Gala Bingo, Eurobet, Betdaq, Sportium
- Bwin, Sportingbet, Betboo, Gamebookers, Partypoker, Partycasino, CasinoClub, Gioco Digitale, Foxy Bingo, Foxy Casino
The Department of Culture, Media and Sport has said it will cap the size of stakes gamblers can make on fixed-odds betting terminals, amid concerns they may harm vulnerable people.
Ministers proposed that bets on the machines be cut from a maximum of £100 a spin to somewhere between £2 and £50.
GVC and Ladbrokes Coral said that the review could impact on the profitability of Ladbrokes Coral's UK business.
Under the proposed takeover deal, GVC will pay 160.9p for each Ladbrokes Coral share, which would value the company at £3.1bn.
However, if the outcome of the government's review of gaming terminals is favourable to the gambling industry, and imposes a higher limit on fixed odds bets, then GVC will pay Ladbrokes Coral shareholders a so-called "contingent value right" (CVR) of up to 42.8p per share. When added to the original payment, this could value the company at up to £3.9bn.
The takeover of Ladbrokes Coral could go ahead before the government announces the result of its review. Following the outcome, GVC would then pay the CVR to Ladbrokes Coral shareholders.
GVC and Ladbrokes Coral have previously held talks about a takeover, but they broke down.
"GVC got lucky at the third attempt and Ladbrokes Coral shareholders can count their winnings," said Neil Wilson, senior market analyst at ETX Capital.
"Whilst this deal was always likely, most had thought GVC would wait until the government's triennial review of fixed odds betting terminals was finished before it would happen."
The "tie-up has always made sense", he added.
Isle of Man-based GVC "has little debt and has the global and fast-growing online presence, Ladbrokes Coral has the physical footprint, High Street name and sports book".
Under takeover rules GVC now has until 4 January to decide whether to make a firm offer for Ladbrokes Coral or to withdraw.