Alliance Trust has confirmed it has received an "unsolicited approach" from RIT Capital Partners over a possible merger of the investment trusts.
Alliance said no detailed terms have been provided by RIT, which is chaired by Jacob Rothschild, in relation to the "informal proposal".
A merger would create a company with a market capitalistion of more than £5bn, with RIT currently worth around £2.5bn and Alliance Trust £2.6bn
Alliance said in a statement that it had recently appointed Canaccord Genuity to carry out a strategic review of the group "encompassing a broad range of potential courses of action which the company might choose to take for the benefit of its shareholders".
Alliance said: "There can be no certainty that any transaction will result from the strategic review. In the interim, shareholders are strongly advised to take no action and to await the outcome of the board's strategic review."
RIT Capital already owns a stake of less than three per cent in Alliance Trust.
It has been an eventful period for Alliance Trust. In April last year, the company gave shareholder Elliott Advisors the power to appoint two of three independent directors after months of campaigning by the US investor.
And in February this year, Alliance confirmed the departure of chief executive Katherine Garrett-Cox. She had already stepped down from the board following the company’s battle with Elliott Advisors.
Roger Lawson, the deputy chairman of shareholder advisory group ShareSoc, which supported the Elliott Advisors campaign, said a “a merger with another trust might surely make sense”.
He wrote in a blog today: “Alliance Trust has been shrinking in size because of the share buy-backs and the lack of new investors meant that the discount was likely to persist for some time. Mergers of investment trusts can of course reduce overall costs as administration and investment management costs are spread over a larger asset base.”