Gallaher is the world's fourth-largest cigarette company

The British firm, which makes Silk Cut and Benson & Hedges cigarettes, said the preliminary approach was worth 1,140 pence per share.

Gallaher declined to name the potential bidder, but Japan Tobacco was widely believed to be behind the move.

Gallaher revealed earlier this month that it had been approached by a potential buyer.

Shares in the company closed up 0.35% at 1,155p at the end of trade on the London Stock Exchange.

'Good match'

"Gallaher announces that it is in discussions with a third party about the possibility of a recommended cash offer being made for the whole of the issued share capital of Gallaher," the company said.

Analysts said a possible tie-up between Gallaher and Japan Tobacco, the world's fourth and third-biggest cigarette companies respectively, would be a good match.

Gallaher makes the majority of its profits in the UK, Ireland, Austria and Sweden, while outside of its home market Japan Tobacco generates strong income from France, Spain and Italy.

Japan Tobacco owns brands including Mild Seven, Camel and Winston.

A combined Gallaher and Japan Tobacco would rival market leader Altria - which makes Malboro cigarettes - and British American Tobacco - which makes Lucky Strike and Dunhill cigarettes.