Carillion and Balfour Beatty have confirmed that they are in preliminary talks over a possible merger between the two companies.
If the merger were to go ahead, it would create a giant group estimated to be worth around £3bn.
Infrastructure firm Carillion operates in Britain and Ireland, the Middle East, Canada and North Africa, while Balfour Beatty operates in 80 countries.
In a statement, the Boards of the two companies said: "The merger of the two groups has the potential to create a market-leading services, investments and construction business of considerable depth and scale. Work is now underway to develop a strategy and outline business plan for a combined entity. In evaluating the merits of the merger, the two boards will, inter alia, wish to be satisfied that such a merger would lead to very significant value creation for the benefit of both sets of sharehoulders."
The two companies have also agreed that Balfour Beatty's publicly announced sale process for Parsons Brinckerhoff would proceed unaffected by this announcement.
Earlier this year (May 2014), Balfour Beatty CEO Andrew McNaughton stepped down with immediate effect, after the company warned of a £30m shortfall in its UK construction business.
No final decision has been reached regarding the structure of any merger and, as per the City Code on takeovers and mergers, the firms have until 5pm on 21 August 2014 to announce their intentions.