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Tata Steel, the country's largest private steel company, is in advanced negotiations with the Anglo-Dutch steel giant, Corus Group, for a possible takeover.
Sources close to the development said Tata Steel might offer around 580 pence per share, valuing Corus at almost £5.5 billion ($10.4 billion).
The offer could be made as early as this weekend.
Corus is the ninth-largest steel producer in the world and the second-largest producer in Europe, with a workforce of 45,800 employees. Its total debt stood at nearly $3.15 billion.
While the details are still under wraps, the deal, if it materialises, will easily be the largest overseas acquisition by an Indian company.
Corus' revenue grew 8.7 per cent to $17.03 billion last year. It has an annual production capacity of 18 million tonnes, enjoying 50 per cent share of the UK carbon steels market and 11 per cent of the European market.
While Corus said it did not want to comment on speculation, a Tata Steel spokesperson said the company did not wish to comment on a speculative market report based on unconfirmed sources.
The Corus counter at the FTSE witnessed a trading volume of 35 million shares yesterday and 38 million shares today. Corus shares increased 5.41 per cent on the FTSE to 413.50 pence at the time of going to press.
Sources in the know said the European steelmaker's strategic direction was to build a sustainable business in Europe, while looking to secure access to steelmaking at lower cost, higher growth regions, and this was where an Indian entity like Tata Steel would be a strategic fit.
They added that the deal would be a leveraged buyout, where the Tata group entity would raise funds against its future earnings. They also said two foreign banks might help Tata Steel raise funds for the acquisition.
Industry sources said after the acquisition, Tata Steel would emerge as the country's largest steel maker, superseding public sector giant Steel Authority of India, with a total capacity of 23 million tonnes a year from the existing 5 million tonnes. SAIL is at the top of the ladder with a production capacity of 14 million tonnes a year.
Corus has manufacturing operations in many countries with major plants located in the UK, the Netherlands, Germany, France, Norway and Belgium. It has four divisions - strip products, long products, distribution and building systems and aluminium - and a global network of sales offices and service centres.
The Tata Steel scrip closed at Rs 523 on Wednesday, down 2.15 per cent in a weak Mumbai market.