South African Breweries is in exclusive talks to buy Miller Brewing from Philip Morris for about $5 billion, the Wall Street Journalreports in its online edition.
The Journalquoted sources as saying talks are at an advanced stage and the two companies hope to finalise terms in the next few weeks though a formal announcement may not be made until the end of May.
SAB is the world's fifth largest brewer with brands such as Castle and Pilsner Urquell. It declined to comment on the report today.
But the deal, which would create the world's second largest brewer behind Anheuser Busch, could still fall apart, it added.
A merger would expand SAB's interests in more mature markets and away from its traditional focus on developing areas, and would come as takeover talk continues to surround some of the world's top brewing firms after a bout of merger activity.
In early trading SAB's shares in London were four pence lower at 489p, valuing the business at around £4.1 billion sterling.
Under the terms of the deal being discussed, Philip Morris would own roughly a quarter of SAB and would agree not to sell its stake for some time, the Wall Street Journalsaid.
Philip Morris, the world's largest tobacco company and second largest food company through its Kraft unit, wanted about $2 billion of the roughly $5 billion sale price to be in cash, but would not take the money directly because it wanted to minimise taxes, the paper reported.
SAB also has to decide if expanding into the US beer market was right at a time when consumers may be shifting towards liquor-flavoured products such as Smirnoff Ice.
Also, analysts saw little in the way of synergies and warned any merger would rely heavily on SAB's lowly rated shares.