FanDuel isn't commenting so far, but DraftKings has responded with a non-denial. While it says that it doesn't talk about "rumors or speculation," it also says that a combination would be "interesting to consider" and that there are "no assurances at this time" that talks would lead to a formal alliance.
It wouldn't be shocking for the two to join up at this stage. The two have paid a steep price to put their legal troubles behind them, and it's still not over. ESPN contacts understand that both DraftKings and FanDuel are behind on paying some partners. A merger may be more a matter of survival than anything else.
The biggest challenges may be the regulatory environment and the company leadership. The two sites dominate daily fantasy sports, and would immediately hold a monopoly if they teamed up. Officials would likely demand concessions if a merger went through, assuming it went through at all. Also, the CEOs of Draft Kings and FanDuel are notoriously hostile to each other despite the companies' overly cozy ties. Pride may make it difficult for either leader to assume a less prominent role, and there's no certainty that the two will find a way to share responsibility for a single company.