The cheque, rumoured to be worth between £70 million and £350 million, would be shared among a number of financial advisers working for the two companies.
It is understood that Linklaters is advising BT while Slaughters is retained by C&W to advise on complex national and international legal matters.
But neither firm would confirm the news, reflecting the secrecy surrounding the negotiations.
The possible merger is part of a new wave of take-over activity which is gathering momentum in the second quarter of the year.
City analysts expect consolidation in sectors spanning building societies, telecoms, media and industrials.
One deal could centre on the Woolwich building society where ousted chief executive Peter Robinson is being represented by DJ Freeman.
Other activity may bubble up at what City analysts describe as “poor management stocks” such as Trafalgar House.
Within the industrial sector, defence group Vickers has long been rumoured as a bid target. The company is advised by Lovell White Durrant.
Companies with strong balance sheets such as ICI are thought to be on the hunt for “in-fill acquisitions” to strengthen core businesses.
Philip Isherwood, markets strategist at stockbroker Kleinwort Benson, believes there are still plenty of deals in the pipeline for advisers to get their teeth into.
He said: “We envisage a lively time through next year and into 1998 although I don't think there will be a return to the mega-deals of the 1980's.”
But a small handful of large transactions are anticipated in the next 12 months with BT and Cable & Wireless at the top of the list.
Observers say that international legal issues will figure prominently in the talks. These will relate to C&W's 58 per cent shareholding in Hongkong Telecom and its links with China, which is due to take control of the colony in June next year.
C&W has built up excellent contacts with the Chinese over the years. Its former chair, the late Lord Sharpe, was a committed Sinophile.
Chinese investment group Citic holds 10 per cent of HK Telecom and has two non executive directors on the C&W board.