Stock market sources say that Rhino, which retails products through Future Zone Stores, has also looked at buying Game, a privately owned company.
Dealings in Rhino's shares were suspended yesterday at 58.25p pending a further announcement on negotiations that are expected to lead to a 'substantial acquisition'.
The shares have quadrupled in value over the past year and have become a viable currency for making purchases. Rhino, which has more than pounds 4m in cash, has so far preferred the slower expansion route of opening new stores in shopping malls.
Sources say Virgin wants to exit from video games as part of its commitment to expanding its airline business.
Stock market dealers do not rule out the possibility of Rhino making a rights issue to fund a purchase, as the company encountered no problems in a pounds 4m cash call earlier this year and a recent placing of 2.5 million shares to aid expansion.
Rhino's previously stated expansion plans involved the opening of 40 to 50 shops in each year until 1998, a relatively inexpensive process given the availability of retail sites due to the recession.
Industry analysts expect the British market for video games to continue growing rapidly throughout the Nineties. This is partly because of the late entry of the UK into the market in 1988, five years after Japan and two years after the US.
Recent research by Charles Elliott, an analyst at Goldman Sachs, the securities house, said that video games had 'almost certainly been the best selling consumer use product in the UK during the recession'.
However, the level of market penetration - percentage of households owning a video game - is still only 15 per cent in Britain against 50 per cent in Japan and the US.
Rhino came into being just over a year ago when Bev Ripley and Terry Norris, former directors at Cityvision, the Ritz video hire shops group taken over by Blockbuster of the US, moved into JMD Group. Neither was available for comment yesterday. In September, the company announced an increase in seasonal first-half losses from pounds 150,000 to pounds 263,000, but said the second half 'should benefit substantially from Christmas trading'.Reuse content