One of the UK's largest pub operators Punch Taverns is said to have made an offer for its troubled Birmingham-based rival Mitchells & Butlers.
A "merger" between the two firms would create a pub giant worth around £3.7 billion with more than 10,500 outlets.
It is not known how much Punch has offered for M&B, but it is claimed the group has appointed Morgan Stanley and Goldman Sachs to advise it on the deal.
Burton-on-Trent-based Punch, tipped last week to be stalking M&B, could make an announcement to the London Stock Exchange today clarifying its intentions.
The move comes after M&B revealed it had lost £274 million through a collapsed £5 billion property deal and an interest rate hedge, leading to the resignation of its finance director.
The group said it had received "preliminary and tentative" expressions of interest from a number of groups. M&B, which owns the Harvester and All Bar One chains, is understood to have appointed the investment bank Greenhill to work alongside its current advisers Citigroup.
It has seen seen its stock market value drop 50 per cent since the summer from a peak of £3.6 billion, and in December it was relegated from the FTSE 100 Index.
But Punch is unlikely to be alone in its interest in M&B, with private equity groups Blackstone, Cinven, TPG and CVC also thought to be circling the group.
M&B's biggest shareholder entrepreneur Robert Tchenguiz, who has a 23 per cent stake in the group, is also thought to be considering increasing his holding, and possibly launching a bid with a private equity firm.
It was also reported over the weekend that M&B chairman Roger Carr is to appoint a City law firm to investigate the circumstances leading up to last week's losses.