Jardine Lloyd Thompson Group confirmed this week that it was in discussions with rival Heath Lambert over a possible £130m takeover bid.
JLT said in a Stock Exchange announcement that discussions were at an “early stage” and that they “may or may not lead to a transaction”.
The announcement came as investment bank Morgan Stanley warned that a deal could lead to a significant cut in jobs across a merged business.
Analyst David Collins said the loss of up to 400 jobs, or 10% of the combined entity's workforce, would save £16m a year, and boost JLT's earnings per share by a quarter.
Since the beginning of last week JLT's share price has had an almost uninterrupted rise.
It closed last week at 372p, an increase of over 5% on the start of the week. On Wednesday, on the back of Morgan Stanley's note, the share price surged to a high of 407.75p before closing at 400.50p.
Meanwhile, despite speculation that the deal was imminent, sources close to Heath Lambert said any deal would take at least six weeks to complete.
The source also denied reports that senior Heath Lambert executives would be in line for a boost to their personal stakes in the business.
Adrian Colosso, Heath Lambert's chief executive, owns 3% of the company, while Mike Bruce, the managing director, holds a 2.5% stake. Keith Hamill, the non-executive chairman, owns 1.5%.
JLT has a market capitalisation of £780m, while it is believed Heath Lambert is valued at around £130m. JLT has already acquired most of Heath Lambert's Latin American and aviation operations.
Analysts have said the move would be a good one for JLT, as it could generate cost savings and help it to head off any acquisition bids.