Shares in gaming group 888 Holdings surged as investors reacted to the possibility of a £470 million takeover by high street bookie Ladbrokes.
The stock was up by more than 8% after Ladbrokes confirmed that it was in the early stages of talks with 888.
The statement by Ladbrokes followed earlier speculation that 888 was in merger talks with rival PartyGaming.
Last week, 888 admitted it was in discussions with other firms over a possible deal as the sector looked to recover from the ban on internet gambling in the United States.
Although 888 refused to name who it was in talks with, it was widely speculated that a £1.6 billion merger with PartyGaming was a realistic option.
But according to the Mail on Sunday, 888 founders and majority shareholders Avi and Aharon Shaked want to establish ties with a conventional gambling company rather than another online casino.
Ladbrokes executives, including boss Chris Bell, were thought to be in Tel Aviv this weekend for talks with the Israeli brothers who currently own 51.2% of 888.
It is thought that if a deal with Ladbrokes goes through they could become the largest private investors in the bookie, which is valued at £2.5 billion.
John Anderson, who is chief executive of 888, is a former Ladbrokes executive and is said to have retained close ties with former colleagues.
The online gaming sector was rocked early last month when the US passed a controversial bill which effectively outlawed internet gambling. Shares in the sector crashed, although 888 fared better than most - down 25% - as it was not as heavily reliant on the US for business as rivals such as PartyGaming.
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