S&N, with brands including Foster's, Kronenbourg, John Smith's and Strongbow, has been mooted as a possible bid target for months, and is still considered vulnerable price-wise after recent industry warnings about slowing beer consumption.
Recently the group unveiled 2006 pre-tax profits 14 per cent up at 535 million on sales 7 per cent higher at 4.15bn and, in February, it was forced to announce 50m of cost-cutting measures as it battled the Scottish smoking ban. That came after 60m of back-office and brewery cuts in the past couple of years.
The deal suggested yesterday would have seen Diageo acquire S&N's UK beer business while SAB would have taken control of its international assets, such as Indian brewer United Breweries.
S&N's Kronenbourg interests in France would also have been sold off, possibly to a private equity buyer
Last month, takeover speculation surrounding possible bids by Heineken or Carslberg caused S&N shares to go above 600p, but they later fell back. Yesterday they ended up 2.8 per cent at 587.50p.
According to the report, the plan, discussed as recently as last month, reportedly involved a bid of about 710p a share.
A spokesman for S&N said: "This is really no more than an extension to market rumours of recent weeks and we never comment on market speculation."
Diageo had a similar response adding: "We do not comment on market speculation."
According to market sources, however, it is believed that both Diageo and SABMiller had been in talks with S&N, - although it was not know if they had been together - over a year ago and both had decided not to take any thoughts of a takeover further. At that time, said one drinks expert, Diageo, the owner of Guinness and Johnnie Walker, had considered S&N too expensive, and that it was not keen on further exposure to emerging markets, with S&N developing its interests currently in Russia, India and China.
S&N is the fourth-largest European brewer, with an estimated 10 per cent market share of western and eastern Europe by volume.
Some analysts yesterday suggested that, with S&N underperforming the drinks sector by 4 per cent and the FTSE by 5 per cent in the past year, recent share price rises had been triggered by other merger and acquisition speculation.