Fellow Map Merchant company Premier Paper will be unaffected by the move.

Map president and chief executive Karl-Johan Lindborg said the merchanting group, part of M-real, would now consult with all employees over the next month, at which time a final decision will be taken.

Lindborg emphasised the move was still only a possibility, but had to be announced as a legal requirement.

"We now believe the sales offering of both companies could be enhanced by MoDo becoming part of James McNaughton," he said.

In a letter to employees, MoDo Merchants managing director Mike Hoyne said the firm had made significant progress to reduce a trading loss of 6.5m over the last three years to 2.2m in 2003.

But breakeven scheduled for 2004 was now unlikely to be achieved "in an acceptable timescale", which had prompted the move by parent M-real.

The two companies launched a joint logistics company gm2 in 2002, and since then further back office developments including IT and finance department integration has followed.

The possibility is that future trade will be conducted in the McNaughton name with effect from 1 January 2005.

The plan is that James McNaughton will acquire the shares of MoDo so the two companies can be run under a common trading name and platform, using gm2, the common logistics supplier.

James McNaughton chief executive Ian George said he had positive feelings about the move.

"Obviously if you have a plan with a business to restructure you have to decide how this will be done."

George said at this present time there were no plans for any change to either firm's product offerings.

MoDo Merchants has 10 branches across the UK, and employs 190 staff with a turnover of 55m.

James McNaughton has a turnover of 200m, with 40 sales offices and 623 employees.

Story by Andy Scott