A major gambling marriage is looming in Queensland with Jupiters Ltd and UNiTAB Ltd, the old Queensland TAB, yesterday revealing they were holding merger discussions.

Both companies are apparently keen to start the talks as soon as possible, which are expected to be concluded in the March quarter.

While Jupiters has historically been a land-based casino business, its fixed odds sportsbetting business Centrebet is its fastest growing division and the companies believe there are advantages in combining that with the TAB operator.

Any transaction would be subject to the approval of shareholders of both companies and of Queensland Treasurer Terry Mackenroth.

Jupiters informed the market it had initiated merger talks with UNiTAB in a move that could create a unified gambling group with a market capitalisation of $1.65 billion and annual revenue of $1.2 billion.

"At this stage it is uncertain whether these discussions will result in an agreement to pursue a merger," a UNiTAB spokesman said last night.

Any merger would significantly catapult the size of both groups in Queensland with UNiTAB already a serious rival to TAB Ltd in NSW and Victoria's Tabcorp.

Both Jupiters and UNiTAB have been tipped as takeover targets for TAB and Tabcorp and though a merged entity would be a more attractive prize it would be more difficult to swallow.

The merged company would be Queensland's fourth largest by market capitalisation, behind Suncorp Metway at $5.7 billion, MIM at almost $3 billion, and Flight Centre at $1.9 billion.

Jupiters, a hotel and casino operator, is by far the larger of the two groups capitalised at $1 billion with revenue of $796 million last year and net profit of $78 million.

UNiTAB is capitalised at $566 million and reported a net profit of $25 million last year on revenue of $364 million.

Jupiters chief executive officer Rob Hines was giving away little about the deal last night, saying only that the talks were at a very early stage.

"It would not normally be our style to announce something as early as this but because we have this Breakwater bid open, we've got extra obligations under the Corporations Act to disclose," he said.

Jupiters is close to successfully mopping up the rest of Breakwater Island Trust - owner of a casino in Townsville - in a $28 million takeover.

Jupiters has so far received acceptances to lift its holding to 84.85 per cent from 47.5 per cent, with the offer closing on December 27.

Mr Hines said the talks might result in a merger of equals, not a takeover. "We're talking about putting the two companies together on an equal basis."

Mr Hines said a merger would make Jupiters bigger and give it more opportunities to be aggressive in other markets.

UNiTAB Ltd recently changed its name from TAB Queensland Ltd, to reflect the evolution of the company since it now owns more than 1000 betting outlets across South Australia, Queensland and the Northern Territory.

UNiTAB general counsel and chief strategist Robbie Cooke said the two companies would begin talks tomorrow.

"It is a bit unusual but to enable us to start having the discussions we had to make the release because Jupiters has a bid out for Breakwater."

UNiTAB Ltd has legislated shareholder limits that are in place until August 31, 2004 which prevents any investor owning more than 10 per cent of its scrip, which renders it takeover-proof until then.

"A merger would not cause a problem if this is the entity that remains after the bid," Mr Cooke said.

Shaw Stockbroking head of industrial research Scott Marshall said a merger between the wagering and gaming companies was logical as both were facing the end of their current growth prospects.

Jupiters shares yesterday finished steady at $5.17, while UNiTAB firmed 1¢ to $4.31.