Intercontinental Hotels Group (LON:IHG) is in talks with US rival Starwood Hotels & Resorts (NYSE:HOT) about a potential tie-up, it emerged on Thursday.
IHG is said to have held preliminary talks with Starwood about a merger that would create the world's biggest hotelier.
In April, Starwood is thought to have appointed investment bank Lazard to study options available to the group.
IHG has reportedly taken on Bank of America Merrill Lynch.
Spokespeople for IHG and Starwood declined to comment on the matter.
Starwood employs more than 180,000 people at more than 1,200 hotels in some 100 countries.
It owns, runs and franchises hotels and resorts under the St. Regis, Luxury Collection, W, Westin, Le Méridien and Sheraton brands, among others.
IHG's brands include the eponymous hotel chain as well as Crowne Plaza, Holiday Inn and Kimpton.
The news came as IHG reported a 9% rise in reported operating profit to US$337mln in the six months to June 30 on a 1% rise in revenue to US$915mln. It increased its total dividend per share by 10% to 27.5 cents.
Global comparable first half revenue per available room rose 5.1%, with growth across all regions.
Chief executive Richard Solomons also declined to comment on the Starwood speculation, although he acknowledged industry consolidation.
He told reporters IHG was targeting smaller deals such as the US$430mln acquisition of Kimpton, which it completed in January this year.
Solomons said: "Based on current trading trends, we remain confident in the outlook for the rest of the year."
Shares in IHG rose 96p or 3.7% to 2719p.