Dixons, owner of Currys and PC World, and Carphone Warehouse are in “very preliminary talks” over a possible merger.
Confirming speculation to the BBC, the two companies said: "The boards of Dixons and Carphone Warehouse note the recent speculation and confirm that the two companies are in preliminary discussions regarding a possible merger of Dixons and Carphone Warehouse.
"These discussions are at a very preliminary stage and there can be no certainty that a transaction will be forthcoming. No decision has been reached regarding the structuring of any such merger."
Over 500 Currys and PC Wold stores operate under the Dixons name, while Carphone Warehouse has more than 2,000 retail units across Europe.
Shares in Dixons Retail rose 7.5 per cent since reports surfaced on the talks, while Carphone Warehouse has seen its shares climb 6 per cent.
The two are expected to announce their intention to make an offer by 24 March, under the requirements of Britain's Takeover Panel.