Granada and Yorkshire-Tyne Tees Television jointly issued a statement confirming that preliminary discussions had taken place. Sources said the deal, which would value Yorkshire at pounds 11.75 a share, was likely to be signed within a fortnight.
The City has for many months anticipated that Granada, which owns a 27 per cent stake in Yorkshire, would table a full bid for the company. According to insiders, formal discussions, involving the companies' advisers, Lazard Brothers and Schroders, began just last week. However, the two companies co-operate in areas such as airtime sales.
Granada signalled three months ago that it would not launch a full bid for Yorkshire unless the share price dropped to a more reasonable level. The price being offered is significantly lower than the pounds 17 a share thought to have been suggested by Ward Thomas, Yorkshire's chairman.
Both companies said they were forced to make a public statement after Yorkshire's share price soared 52.5p to pounds 11.60 following weekend press speculation.
Charles Allen, chief executive of Granada, said: "The logic of a merger of these two businesses has never been in any doubt. If successful, this move would clearly be beneficial for both parties. However, there is still some way to go."
A merger would provide some opportunities for cost-cutting, although Yorkshire is said to be a fairly lean operation, employing 675 people. Granada, which has extensive leisure operations, including the Forte hotel chain bought last year, has 75,000 employees. Mr Thomas was not available for comment last night. He is on holiday in France, and returns tomorrow, when Granada's interim results are due to be announced.
The announcement followsnews that Scottish Media Group was in talks about acquiring its neighbour, Grampian Television, for pounds 105m. ITV companies had been bracing themselves for a further round of consolidation after the 1996 Broadcasting Act revised the rules on media ownership. Carlton Communications took advantage of the changes with its pounds 85m purchase of Westcountry Television for pounds 85m last autumn.Reuse content