The two rival broadcasters have been in talks for some time, but The Daily Telegraph claims that they have now agreed terms.
Combined, Channel 4 and Sky will account for a 38% share of the UK TV advertising market (individually they have 24.7% and 13.4% respectively) -- approaching the 46% share of ITV.
The Competition Commission is due to publish its recommendations about regulations governing ITV’s advertising sales in six weeks time, and it is thought that BSkyB and Channel 4 are waiting to see if the Commission recommends that ITV has its Contract Rights Renewal (CRR) mechanism lifted or relaxed before they go ahead with the merger.
The CRR regulates ITV's negotiations with advertisers and was put in place to stop the broadcaster abusing its dominance of the market.
A source told The Daily Telegraph that Channel 4 chief executive Andy Duncan has been leading the Sky talks with Channel 4's sales director Andy Barnes.
The source said: "The merger will allow both companies to make huge savings, lower headcounts and run a more streamlined operation. There is unrest at Channel 4 about this decision."
It is believed the deal will make it possible to axe around 50% of the combined sales staff.
This deal was originally thought to be a back-up plan for Channel 4 -- which has a funding gap of about £150m -- if a joint venture with BBC Worldwide should fail to materialise.
Both broadcasters have so far declined comment.
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