Two newspaper groups are reported to be working on plans to pool their regional titles into a new business called Local World.
The proposed combination involves Northcliffe Media, which is the regionals arm of Daily Mail & General Trust (DMGT), and Iliffe News & Media, owner of the Cambridge News and Hertfordshire Mercury, Sky News said.
Iliffe's parent company Yattendon Group and DMGT would between them own close to 50% of Local World, while former Mirror Group chief executive David Montgomery will also have a stake. He is expected to use the initial combination as a springboard for pursuing other assets in the sector, it was reported.
DMGT said: "In response to media speculation, DMGT confirms that it is currently in talks regarding the future of Northcliffe Media. No deal or transaction has been agreed but if these talks move to the point where agreement is reached, an announcement will be made to the market."
Its Northcliffe Media division includes the Leicester Mercury, Bristol Post and Derby Telegraph, as well as 26 local news, information and classified websites under the "thisis" banner
The proposed deal is expected to value Northcliffe at little more than a tenth of the £1.2 billion offer reportedly rejected by DMGT in 2005. Conditions in the industry have deteriorated sharply since then, with Northcliffe's operating profits falling 37% to £17 million in the year to November 2011.
Iliffe News & Media has a portfolio of three daily newspapers, 25 weekly newspapers and two Sunday newspapers.
The proposed deal is thought to have the support of hedge fund manager Crispin Odey, while a syndicate of banks are preparing to agree new borrowing facilities for the enlarged group.