SAB in £3.5bn bid talks for Miller

SOUTH African Breweries, the London-listed maker of Pilsner Urquell, is thought to be in exclusive talks to buy America's Miller Brewing from Philip Morris for about £3.5bn.

A deal would make SAB the world's second-biggest brewer. Crucially for the group, which relies heavily on markets like South Africa with weak and volatile currencies, it would also give it access to strong dollar revenues.

Philip Morris, best-known for its Marlboro cigarettes, put Miller on the auction block some time ago, having seen it fall in the global rankings from third a decade ago to seventh, although it retains number two spot in the US. Miller Lite, invented in 1975 and recently known for the 'It's Miller Time' TV ads, was the first low-calorie beer on the market.

Reports said the transaction would be funded with a mixture of cash and shares, with Philip Morris ending up a major shareholder in SAB but agreeing to a lock-in period for its stake. For tax reasons, Philip Morris will take about $2bn (£1.3bn) of the transaction in debt, which would transfer to SAB's books.

SAB, which refused to comment, has made several small acquisitions in developing markets such as China, which have so far been its speciality. The US deal, which will see it competing against Anheuser-Busch in a highly competitive market, would be a serious departure.