"GFH has been in discussion with several financial institutions, including Shuaa Capital, for potential majority shares acquisitions of those financial institutions and/or mergers," GFH said in a statement to the Bahrain bourse, without disclosing further details.
A spokesman for Shuaa declined to comment.
Both companies were prominent in the region a decade ago, before they were forced to shrink by the global financial crisis. Both have said they want to use acquisitions to resume growing rapidly.
Shuaa's stock price jumped over 18 percent to a seven-year high on Sunday and Monday. But it closed 4.2 percent lower on Tuesday after GFH released its statement, suggesting some investors were now wondering whether the financial terms of a merger would benefit Shuaa shareholders.
GFH's Dubai-listed shares jumped 7 percent on Monday but closed 0.7 percent lower on Tuesday.
A web of ties between GFH and Shuaa began forming last year. In May, Abu Dhabi Financial Group (ADFG) and GFH said they were jointly setting up an Islamic bank called ADCorp in Abu Dhabi's new financial free zone with initial capital of $100 million.
In November, ADFG bought a 48.36 percent stake in Shuaa, which has a market capitalisation of about $535 million. In December, Shuaa bought 14 percent of Bahrain's Khaleeji Commercial Bank for $25 million. GFH owns 47 percent of Khaleeji.
On Sunday, Shuaa said it would acquire Integrated Capital and Abu-Dhabi based brokerage Integrated Securities, both controlled by ADFG. Integrated Capital owns 11.74 percent of GFH, according to Thomson Reuters data. ADFG officials did not respond to requests for comment about the possible merger.
(Reporting by Andrew Torchia, editing by Louise Heavens) ((email@example.com; +9715 6681 7277; Reuters Messaging: firstname.lastname@example.org))
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