The union and Ospreys said that if the deal goes through, Hong Kong-based Y11 would take ownership of both teams, though they would still operate independently.
The WRU has been seeking a buyer for Cardiff since it assumed control of the club's operations following their administration in April 2025.
The union's board unanimously backed the recommendation at a meeting on January 19.
Both sides will now enter a 60‑day exclusivity period to finalise the terms of the deal and complete due diligence.
"Our priority remains to support both teams, keeping everyone up to date with progress," the WRU said in a statement.
"The other bidder has now been informed of the Board's decision and thanked for their interest and participation in the process."
The WRU said the choice was based on what it viewed as the strongest financial future for Cardiff, citing Y11's access to investment and its commitment to maintaining the Cardiff Rugby brand and heritage.
If completed, the agreement would see Cardiff continue as an independent club playing at Cardiff Arms Park.
The deal would represent a significant structural change in Welsh professional rugby, potentially reshaping the ownership landscape across the regional game.