The talks are the first major move by Ladbrokes chief executive Jim Mullen who was promoted to the head of Britain’s second biggest bookmaker in March.
“A merger with Gala Coral could create a combined business with significant scale and has the potential to generate substantial cost synergies, creating value for both companies’ shareholders,” Mr Mullen said in a statement.
Mr Mullen said that the Ladbrokes board has yet to decide if the deal was “strategically attractive” and can be presented to shareholders on appropriate terms.
If the discussions advance, Ladbrokes may undertake an equity placing to strengthen the balance sheet of the combined company, the statement said.
The two businesses would have around 4,000 betting shops and also seek to close the gap on market leader William Hill which has pulled away from Ladbrokes thanks to stronger growth in its Leeds-based online business.
Gambling companies are facing tighter regulations and higher taxes in Britain, fuelling deal-making in the sector as players seek to cushion the impact by creating larger businesses.
Shares in Ladbrokes traded almost 11 per cent higher following the confirmation of talks first reported by RacingPost.com.
In its statement, Ladbrokes said the talks were to combine the entities of Ladbrokes and Coral Retail, Eurobet Retail and Gala Coral’s online businesses.
Ladbrokes said the proposed combination, if completed, may be classified as a reverse takeover of Ladbrokes.
Ladbrokes tried to buy Coral in 1998, but had to give up after the then trade and industry minister, Peter Mandelson, stopped the transaction, saying the deal would damage competition and disadvantage gamblers.