Canadian gaming and poker giant Amaya has squared up against online rival 888, as the duo geared up for a £1 billion bidding war for struggling Bwin.party.

Amaya — the Toronto-listed owner of PokerStars and Full Tilt Poker — has emerged as the bidding partner of GVC Holdings, the SportingBet owner which broke cover as a bidder for Bwin.party last week.

News of Amaya’s involvement came after 888 formally confirmed a cash and shares approach for Bwin.party, saying there was “significant industrial logic” in a tie-up.

Sources close to Amaya and GVC’s bid said the pair are also planning a cash and shares offer. A deal would give Amaya a dominant position online.

It is understood that GVC’s management would then get to grips with improving Bwin.party’s sportsbook, giving Amaya the option to buy it in the future.

Amaya became the world’s biggest listed gaming firm last year when it spent $4.9 billion (£3.1 billion) on Rational Group, PokerStars’ owner.

It is currently a two-horse race, with Israeli gaming software firm Playtech and bookmaker William Hill understood not to be entering the fray.

888’s Israeli founders rejected a £723 million bid from Hill earlier this year. Its interest in Bwin.party shows it getting on to the front foot in a climate of consolidation as competitors bulk up to weather tax blows such as December’s new “point of consumption” tax, charging offshore bookmakers a 15% levy on bets placed in this country.

Panmure Gordon’s Karl Burns said a swoop for Bwin.party by 888 could generate as much as £68 million in savings, as well as giving 888’s management access to the firm’s strong European sports betting business under the Bwin brand.

Burns said: “Bwin has got a very good sportsbook. Tax is reducing profit margins and if 888 really wants to compete, it needs to increase its scale.”

Peel Hunt analyst Nick Batram said a deal would also help cut 888’s exposure to tougher poker markets.

Shares in 888 fell 3% or 5.6p to 164.1p today as shareholders anticipated a rights issue, while Bwin.party surged 11% or 10.65p to 110.1p as the bid war heated up.

Bwin.party was created through a 2011 merger between Bwin and Party Gaming but the combined business has struggled with shares and profits halving over the past four years.

Bwin.party said it was “conducting a detailed review of the proposals received to date”.