WH Smith, the books- to-computer retailer, and Freeserve are holding talks that could lead to a merger of their online businesses.
Such a merger would create a powerful UK internet company, combining Freeserve's 1.5 million subscribers with WH Smith's ecommerce activities.
It is understood that the deal could see Freeserve take a stake in WH Smith's online business, which includes bookshop.co.uk.
Talk of such a deal comes as Freeserve's shares continue to rise. They hit a new high on Friday of 325p and were trading slightly down this morning at 312p.