US casino giant MGM has reportedly hired investment bank Morgan Stanley and law firm Weil, Gotshal & Manges to examine a possible merger with fellow heavyweight Caesars, reports the New York Post.

Citing a gaming source “close to the situation,” NYP said activist hedge funds, which together own about a 25 per cent of Caesars, are pushing for an MGM merger.

These funds, which includes Canyon Partners – holder of stakes in both companies – were reportedly the driving force behind the recent unseating of Caesars chief executive Mark Frissora, who will stand down in February.

The source told the NYP that Chaney Sheffield, an ex-Morgan Stanley investment banker who leads Canyon’s lodging and gaming investments, is pushing for the merger, partly to make savings on overheads. “I think the next three to four months will be fascinating,” a second source said.

The combined value of the two companies is more that $50bn and together account for around half the hotel rooms in Las Vegas.

Caesars recently resisted an approach from Tilman Fertitta, whose business empire includes the smaller Golden Nugget casino chain. Caesars, which retains $9bn of debt after emerging from bankruptcy last year, is also reportedly in talks to acquire properties from Jacks Entertainment, owner of six casinos in the US Midwest,

The Jacks deal, which could be valued at more than $1bn, would see Caesars purchase the casino operations, while the company’s real estate business, Vici Properties, would buy the land and lease it back.