Television companies Carlton Communications and Granada say they are in advanced talks about a merger against a backdrop of falling audiences and ad revenues.
Under the terms of the proposal, which revives merger plans aborted earlier this year between the country's two biggest commercial broadcasters, Granada shareholders would own 68 per cent of the group and receive £200 million sterling in cash.
Carlton shareholders would own the rest, although their stake could rise to 34 per cent in 2006 if the share price of the newly merged group reaches the equivalent of 140p per Granada share and meets an agreed earnings target.
Carlton chairman Michael Green would become chairman of the combined company and Granada chairman Mr Charles Allen chief executive.
Shares in Granada, the larger of the two companies, jumped 13 per cent after the announcement to 75-1/4p, valuing it at just over £2 billion. Carlton shares leapt 14 per cent to 129p in early trade, valuing it at £865 million.
Past merger talks never clinched a deal because of concerns a full merger could give the combined group too much power, in the eyes of regulators, over the prices they could charge advertisers.