Shares in Regent jumped 21p to 191p, with SFI up 13p to 191.5p as analysts speculated that rival bidders may enter the fray. However, some pub experts said the ratings of both companies would deter other bidders.
Regent Inns controls 83 pubs including a handful of branded outlets under the Walkabout inns name. It also controls the Jongleurs comedy clubs. SFI, formerly known as Surrey Free Inns, has 55 pubs including the Bar Med and Litten Tree chains.
A merger would create a group with a market value of around pounds 290m with scope for cost savings of around pounds 3m-pounds 4m a year.
The City welcomed the news as pressure grows for consolidation in Britain's fragmented and over-supplied pub sector. It comes on the back of Wolverhampton & Dudley's bid battle with Marston Thompson & Evershed and Enterprise Inns' announcement that it is in talks with Inn Business regarding a possible deal.