S&N + SAB + Miller = world's biggest brewer

Speculation over a proposed merger that would see Scottish & Newcastle combine with two foreign brewers to form the biggest beer maker in the world has reached fever pitch.

The new company, a combination of S&N, London-based South African Breweries and US brewer Miller, would outsize industry giants such as Heineken and Interbrew, and rival Anheuser-Busch as the number one player.

While all three companies have declined to comment, industry sources have said a three-way merger is in the pipeline.

Speculation had intensified in newspapers in America and South Africa. Some sections of the US press have reported the deal could be announced as early as March.

S&N, which owns Newcastle Brown Ale and Kronenbourg 1664, is under particular pressure to do a deal to establish significant growth. It is also under pressure from the City to dispose of it pub interests to focus on brewing.

Miller, owned by cigarette maker Philip Morris, also needs to do a deal. It is the sixth largest brewer in the world but 20 per cent of its sales are in the US. Despite being the second biggest in America, it saw sales slump 2.7 per cent in 2001 following a four per cent decline in 2000.

South African Breweries, the world's fifth largest brewer, is thought to be the significant factor in the deal. The lion's share of its sales come from Africa but it has expanded in to such emerging markets as China, Honduras, India and Russia.

Stuart Price, beverages analyst at German bank WestLB Panmure, said: "SAB is the crucial part - it's the growth engine. The other two are under pressure to do something, especially S&N, which does not have any growth driver."

Mr Price also highlighted the fact that Foster's could walk away from S&N through a break-clause, if a deal went through.

It is believed that under the merger plan, Philip Morris would keep about 20 per cent ownership of the enlarged group with SAB and S&N owning the rest.

It is believed the deal would not require any of the three companies to borrow heavily. The businesses would be pooled together.

Earlier this week, S&N made a £60m foray into the Indian market and would have some synergies with SAB as a result.

S&N, the world's seventh-largest brewer, transformed itself in the 1990s from a regional brewer to the UK's largest. It has expanded into Europe through acquisitions in France and Belgium.

It is thought that S&N would put its entire pub operation, which comprises 2,500 pubs, up for sale, if the deal does go through.