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FamilyMart Co Ltd (8028.T) and UNY Group Holdings Co Ltd (8270.T) said on Friday they were considering a merger that would create Japan's second-biggest convenience store chain, rivaling industry leader Seven-Eleven Japan.

The move comes as FamilyMart, Japan's No.3 convenience store chain, and UNY, the owner of fourth-ranked Circle K Sunkus, seek ways to bulk up amid intensifying competition in a saturated market, a source familiar with the talks told Reuters.

The chains had combined revenue of 2.81 trillion yen ($23.4 billion) in the year ended February 2014, eclipsing second-ranked Lawson Inc (2651.T) to close in on Seven-Eleven's 3.78 trillion yen. Seven-Eleven is owned by Seven & i Holdings Co (3382.T).

In separate statements, FamilyMart and UNY said they were in discussions but nothing had been decided yet.

Shares in FamilyMart fell 3 percent but UNY surged 8 percent.

"UNY will be able to create a growth story by strengthening its convenience store business. There are hopes it can pull itself out of a pattern of falling sales and profits," said Hiromitsu Kamata, head of the Japanese equity target department at Amundi Japan.

On the other hand, a merger is seen as negative for FamilyMart because of the struggling general merchandising stores under UNY's umbrella, Kamata said.

UNY expects its operating profit to have fallen 13 percent in the fiscal year ended last month, down for the third straight year as it grapples with weakness in its supermarket business.

In the cut-throat competition among Japan's ubiquitous convenience stores, which sell everything from freshly brewed coffee to clothes and branded foods, the companies would seek efficiencies in procurement and distribution, the source said.

In other recent sector moves, Lawson said late last year it was buying upmarket chain Seijo Ishii Co.

Kyodo News said the tie-up was likely to be mediated by Itochu Corp (8001.T), Japan's third-biggest trading house and the largest shareholder in FamilyMart with a stake of about 37 percent. Itochu also owns about 3 percent of UNY.

FamilyMart and UNY have a combined 17,599 stores nationwide, ahead of Seven-Eleven's 17,491, according to Kyodo.