GVC Holdings, who own bwin and Sportingbet among others, are in talks with Ladbrokes Coral over a takeover bid that would create a giant gambling operation.
The news was released by the two firms on Thursday morning when a statement revealed they were in "detailed discussions" to combine businesses in a deal worth £3.9 billion.
Shares in Ladbrokes Coral soared by nearly a quarter on the back of the news to 169.5p, while GVC's share price rose 4.56 per cent to 950.5p.
However, the final price GVC would pay depends on a government review of fixed-odds betting terminals that could result in maximum stakes dropping to £2 from £100.
In August, it was reported GVC had failed in a bid or Ladbrokes Coral, but the sale of their Turkish business last month led to speculation another takeover attempt was imminent.
While senior management positions have yet to be decided, it was confirmed that GVC chief executive Kenny Alexander would take that position in the enlarged group if a deal is completed.
The statement said: "The boards believe that a transaction has the potential to create material shareholder value and that there is a compelling strategic rationale for the possible offer.
"The enlarged group would be an online-led globally positioned betting and gaming business that would benefit from a multi-brand, multi-channel strategy applied across some of the strongest brands in the sector.
"The enlarged group would be geographically diversified with a large portfolio of businesses across both regulated and developing markets, with the scale and resources to address the dynamics of a rapidly changing global industry."
Analysts at Davy Stockbrokers said: "The proposed merger of GVC and Ladbrokes Coral makes sense strategically. It diversifies both, it creates an online and retail gaming company of enormous scale, and should lead to material synergies."