Australian energy retailer AGL Energy said it has approached Origin Energy about a potential A$13 billion (US$10 billion) merger to create the country's biggest gas and electricity supplier.
AGL said in a statement on Thursday that the merger approach was based on a "nil premium scrip" basis, which means neither party would pay a share price premium to gain control of the combined company.
The news sent AGL's shares up over 2 percent, although Origin, whose shares have risen over 10 percent in the past month as takeover speculation grew, fell more than 3.5 percent.
Origin confirmed the approach, but said the proposal was only indicative and preliminary, and that it was not at present in any talks with AGL.
"Essentially what they are trying to say is AGL could launch a hostile bid, if they want to. There is no conversation between parties. That means they are still long way off before it (the deal) happens," said Albert Hung, chief investment officer with Alleron Investment Management.
The plan maintains the pace of merger and acquisition activity in Australia,which jumped to a record US$171 billion in announced deals in 2006, according to Thomson Financial, aided by a surge in private equity takeovers.
AGL's Managing Director Paul Anthony said in a statement that AGL has for some months assessed the benefits of combining the two entities, adding there was a "compelling case" to merge due to the complementary business profiles of each company.
Combining the two businesses would unlock significant economic and financial benefits, including advancing the monetisation of Origin's gas reserves, reducing AGL's need to acquire gas reserves and allow for a significant reduction in duplicated operating costs.
Origin said the merger proposal was unsolicited and that it was still evaluating the proposal.
The Australian Stock Exchange queried Origin last month about its rising share price after media reports that the company could face a bid.
Origin said then it was not aware of any information that had not been announced which, if known, could explain trading in its shares.
A combined AGL-Origin group would have more than 6 million customers, a controlling interest in New Zealand's largest power generator and retailer Contact Energy, and a collection of power plants and oil and gas fields across Australia.