Preston Bus is set to be taken over by bitter rivals Stagecoach.
The companies, which were involved in a fierce dispute over routes until earlier this year, are understood to be on the brink of agreeing a buy-out.
Stunned Preston Bus employees were told of the move at a meeting at Deepdale Labour Club on Monday night.
The value of the proposed deal has not been revealed but lep.co.uk understands it was Preston Bus that approached Stagecoach about a takeover.
A final agreement will be signed if Preston Bus shareholders agree to the move. They have until January 22 to decide.
A deal would mean Stagecoach has a virtual monopoly on services in Preston.
After Monday's meeting, one driver said workers had been offered job security for the next two years if the deal goes ahead.
Another driver added: "It's sad but these are the times we are living in."
Chris Bowles, managing director of Stagecoach North West, said: "I can confirm that discussions have been held with regard to the acquisition of Preston Bus by Stagecoach.
"Those discussions may or may not lead to a deal, that is down to Preston Bus shareholders."
Managing director of Preston Bus Peter Bell said: "We had a good meeting. Staff and shareholders were told what was going on. It is the best way forward for everyone in reality."
Community leaders today branded the move a "sad day" for the city – and raised fears over Preston Bus staff jobs and possible fare increases.
Frank De Molfetta, a former Preston Bus employee who has worked in the bus industry for 40 years, said: "It is very sad indeed for the city of Preston and there are two things now: what kind of services are we going to get and what is the future for the staff?"
Regular bus passenger and Deepdale councillor Terry Cartwright said: "Stagecoach has attacked Preston Bus for the past two or three years, coming on to the profitable routes like Gamull Lane and the Royal Preston Hospital."
Chris Dale, of passenger campaigners TravelWatch North West, said: "I think it is highly likely that fares will go up."
Preston Council sold Preston Bus to employees in 1993 and now only retains an interest in the pensions of those who were working for the company before then.
This is not the first time Stagecoach has tried to snap up Preston Bus, which employs 300. It had tried to strike a deal in 2006. Preston Bus rejected the approach, sparking a bus war.
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