888 Holdings has confirmed it has held preliminary takeover discussions with unnamed third parties following reports that it is negotiating a merger with fellow online gambling firm PartyGaming.

The two troubled companies are in talks to create a £1.6bn business in a bid to rebuild after last month’s online gambling ban in the States, according to the Sunday Times.

Both firms have ceased trading in the US since the ban, losing a large chunk of their income.

In a statement, 888 said: “The Board of 888 notes the recent press speculation and confirms that it has had various preliminary discussions with third parties following suspension of its US activites.

“There can be no certainty that these discussions will proceed to an offer being made.”

The talks between the two companies, which still have a combined market value of £1.6bn, are believed to be at an early stage.

But the online gambling industry is widely expected to see consolidation as firms look to pool what remains of their customer bases.

The Sunday Telegraph also reported that Ladbrokes is looking for takeover opportunities in the sector.