Japanese moneylender Shinpan is expected to agree as early as Thursday to be taken over by larger rival Promise in a tender offer, the Nikkei business daily said.
Promise, Japan's third-largest consumer lender in terms of loan balance, would pay about $1.1 billion to buy all of Sanyo Shinpan's shares based on the current market price.
That would create a company with a loan balance on a par with industry leader Aiful's nearly 2 trillion yen (US$16.5 billion).
Spokesmen for Promise and Sanyo Shinpan said nothing has been decided.
Sanyo Shinpan and Promise have worked out a rough outline for the tender offer, which will begin as early as August, the newspaper said. It said Promise would also acquire Asahi Enterprise, an asset management company holding one-fourth of Sanyo Shinpan and affiliated with Sanyo Shinpan Chairman Masakazu Shiiki.
Both Promise and Sanyo Shinpan have close ties to Sumitomo Mitsui Financial Group, prompting some speculation that Japan's third-largest bank is orchestrating the tie-up.
The bank currently holds a 20.7% stake in Promise, according to Reuters data. Sanyo Shinpan formerly had a tie-up with SMFG through lender At-loan Co., but sold that stake to the bank in 2004.
A source close to the matter told Reuters last week that Promise was thinking of taking a majority stake in Sanyo Shinpan with the intention of an eventual merger. That helped boost expectations of consolidation across the beleaguered industry.
Japan's moneylenders have been hit hard by demands to repay interest charges that courts have ruled illegally high. Stricter usury laws, which were approved last year, have raised concern about lenders' future profitability.
Many lenders have fallen deep into the red, and have been forced to cut jobs and reduce their number of outlets. Promise lost 378 billion yen in the business year to March, while Sanyo Shinpan posted a loss of 89 billion yen.
Shares of Sanyo Shinpan finished Tokyo morning trade up 5.4% while Promise declined 0.9%. An index of the Tokyo exchange's non-bank financial stocks was up 0.4%.