(Reuters) - Sports betting and gaming company GVC Holdings Plc (GVC.L) said it had submitted a bid for bigger rival Bwin.Party Digital Entertainment Plc (BPTY.L), which put itself up for sale last year.
Consolidation activity in the gambling industry has gathered pace as higher taxes and regulations in some of the biggest markets hurt companies.
Bwin's shares were up 9.6 percent at 98.00 pence at 1422 GMT on Friday. The stock, which was up earlier in the day on hopes of a deal, touched a high of 99.70 pence after GVC's statement.
GVC said if Bwin were to agree to a deal, it would be treated as a reverse takeover due to Bwin's size.
Bwin had a market value of about 734 million pounds as of Thursday close, more than double that of GVC.
"It's hard to tell at the moment whether it (deal) will go through, it's more unlikely than likely at this stage but it could be a very good deal for GVC," Panmure Gordon analyst Karl Burns told Reuters.
He expects the deal to be valued at around a billion pounds.
GVC's shares were down marginally at 460 pence on the London Stock Exchange.
GVC's Chief Executive Kenneth Alexander had told Reuters in March that "something like" Bwin would be of interest to the company.
Bwin confirmed separately on Friday that it was continuing discussions with a number of third parties, including GVC.
Bwin, created by the merger of sports betting group bwin and online poker group PartyGaming in 2011, said in November that it was considering a range of proposals from interested parties.
The company, which in 2014 reported its third straight fall in core earnings, has increased cost cuts and strengthened its board to try to accelerate growth.
"Bwin has considerably underperformed over the past five years and GVC has proven with their prior acquisition of Sportingbet that they can integrate an online business successfully," Burns said.
GVC acquired Sportingbet's operations in 24 countries in 2013 for around 31 million pounds. Sportingbet now accounts for more than half of GVC's revenue.
Editing by Sriraj Kalluvila