Michael Grade, former chief executive of Channel 4, is trying to merge Pinewood and Shepperton film studios - a move welcomed by the industry that is struggling to attract Hollywood blockbusters.

Mr Grade, chairman of Pinewood, is in talks on the merger to create a single company worth more than £130m. The talks are expected to be finalised by the end of the month.

Britain's movie making complexes have suffered financially as Hollywood film producers have sought cheaper locations in Europe, Canada and Australia.

Mission Impossible 2, starring Tom Cruise, was filmed in Australia, while the Czech Republic's studio complexes, anther favourite with Hollywood, boast to being a third cheaper than the UK.

Britain has also been criticised by US film makers for the absence of modern studio facilities and technical staff. Pinewood is best known for the making of the James Bond series.

In the deal, Pinewood would absorb the Mill, Shepperton's 40%-owned digital special-effects group.

A spokesman for Pinewood said yesterday: "Mr Grade has expressed his intentions in doing this deal. The reason is to get a decent critical mass in this business and provide a sound basis for these businesses in the UK."

Shepperton is owned by a consortium including film directors Ridley and Tony Scott and venture capital firm Candover. The Scott's are an influential artistic presence, having directed between them Top Gun, Enemy Of The State, Alien, Bladerunner and Gladiator.

It was suggested that Candover has been pushing the sale of Shepperton to realise the return on its investment made five years ago.

A merger of the two studios is expected to see the one company offering more attractive packages to lure film producers. However, it is a tough battle for local studios as other countries offer more attractive tax breaks than Britain.

Films with a budget less than £50m only benefit from the UK tax concessions which rules out most star-studded Hollywood lineups.

Mr Grade is believed to have the support of investors 3i, Intermediate Capital and the Royal Bank of Scotland.