Football pools operator Sportech today announced it is in exclusive talks with Ladbrokes about acquiring its Vernons Pools business.
A combination of the two Liverpool-based firms would set them on course to attract up to a million customers a week in the next few years.
Littlewoods, which was founded in 1923, has half a million weekly customers while Vernons, which dates back to 1925, attracts 200,000.
Sportech has begun scrutinising Vernons' books, in a process which is expected to be completed within three months. Vernons recently reported annual pre-tax profits of £5.9m, with good retention rates among its customers.
Sportech's chief executive Ian Penrose, the former boss of Arena Leisure who joined Sportech just over a year ago, has set about reorganising the business to focus on football pools.
He sold off Sportech's loss-making sports betting division Betdirect to the online gaming firm 32Red for £12.5m last June and closed the interactive betting business.
"We've gone through the process of tidying up the business and reduced the debt burden," Mr Penrose said. "This is ourselves moving forward. We want to make the game more widely available."
Under his stewardship, Sportech's debts have come down to £90 from £115m.
Littlewoods was set up over 80 years ago by the late John Moores when he printed 4,000 coupons at a cost of £50 and handed them to fans outside Old Trafford before a Manchester United match.
Sportech bought Littlewoods in 2000 in a £160m deal that gave it the rights to use the Littlewoods name for 10 years.
That means the name will disappear in 2010, with Sportech stressing that this is part of its plans to update the Littlewoods image.
The launch of the National Lottery in 1994 led to a slump in the number of people playing football pools, but Littlewoods is determined to fight back with new products which will be made available over the mobile phone and the internet.
However, the majority of its customers still buy their coupon on the doorstep, while Vernons only operates through the internet, telephone and by direct debit.
Sportech has decided not to bid for the licence to run the National Lottery. "We considered it and decided not to proceed. We needed to focus our efforts on our activities," Mr Penrose said.