TWO of the biggest UK-listed online poker operators, Party Gaming and 888 Holdings, have held preliminary talks about a possible merger to create a £1.6 billion company.

Both firms have been trying to find a way to cope after sales were hit by the introduction of laws banning online gambling in America.

Party Gaming, the world’s biggest online poker group, fell out of the elite FTSE 100 group of companies, while 888 Holdings dropped out of the FTSE 250 index. Their shares collapsed when both firms said they would cease trading in America.

Executives from the two companies have in the past couple of weeks held exploratory talks to combine their pool of online players. It is expected that further talks will be held in the coming weeks. It is one of several options being considered by both companies and their rivals.

One insider said: “All the players have been talking to each other for weeks. At one stage there were plans for attempting a multi-company merger but it was decided that this would be too difficult and that one merger at a time would be quicker.”

He added: “The biggest problem facing gaming companies is that each one’s pool of players has been dramatically reduced by the removal of the American market. Now when players sign on, there are a lot fewer people to play against, which means even those that are legally allowed to play are finding it less interesting.”

Other firms also trying to find ways to consolidate include Sportingbet, the AIM-quoted company whose former chairman, Peter Dicks, was arrested in America last month, Excapsa, which is also listed on AIM, and Bwin, an Austrian internet betting firm.

The big gaming companies are looking to acquire rivals that have a strong European or Asian presence. For example, Party Gaming has been linked with a deal to buy Gamesys, which is big on the Continent, and Victor Chandler, the bookmaker that has the biggest player base in Asia.

Ten days ago when Party Gaming released its “key performance indicators” for the third quarter, Mitch Garber chief executive, told analysts the company was in talks with several parties. Two weeks ago, Garber told The Sunday Times: “Consolidation is, in my view, the most sensible way to grow the business right now.”

Party Gaming was floated on the London Stock Exchange last year despite its prospectus containing 33 pages warning of risks such as a block on money transmission. The firm earned 85% of its revenues from US clients using its internet services.

In the past month Party Gaming’s shares have slumped 70% to 30p. Over the same period 888 fell 24% and closed on Friday at 108p.

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