PartyGaming today confirmed it is in talks with smaller rival Empire Online (EOL), as reported exclusively by the Guardian.
"PartyGaming confirms that it is in advanced discussions with EOL regarding the possible purchase of certain of its business assets and related operations," the group said in a brief statement.
It promised a further announcement "if and when appropriate".
Shares in Empire Online jumped 2.75p to 46.75p this morning, while PartyGaming added 0.5p to 30.25p. The acquisition of Empire's gaming assets by PartyGaming is likely to be worth up to $40m (£20.42m) and is expected to be the first in a flurry of deals in the internet gambling sector following the US crackdown on the industry.
In a separate statement, Empire said that, if the deal goes ahead, it plans to become an investing company.
"The proceeds of any disposal would be used together with the company's existing cash of approximately US$250 million to invest opportunistically in both private and public businesses and across the small, mid and large-cap range of companies."
It added: "Shareholder approval would be required for a disposal of the company's trade and gaming related assets and in order to approve the company's investing strategy."