NORTH-EAST leisure group Scottish and Newcastle (S&N) is reported to be have held talks with hotel chain Six Continents over a merger that would create the country's biggest pub company.

If the deal goes through, the merged company would form a £4.5bn business and enter the FTSE 100 index.

The enlarged business would have 3,400 managed pubs and a turnover of £2.4bn.

Tyneside brewer S&N, which brews Newcastle Brown Ale and owns brands including Fosters, John Smiths and Theakstons, has been selling its tenanted pubs, but still operates about 1,500 leased outlets.

The company wants to keep control of beer sales through its pubs and may be considering a sale and leaseback of its houses.

Six Continents owns the Inter-Continental and Holiday Inn hotels and any deal would bring together its All Bar One and O'Neills pubs with S&N brands including Chef and Brewer and Bar 38.

Both companies have declined to comment on the merger speculation.

Another North-East pub group, Pubmaster of Hartlepool, recently clinched a £523m deal to increase its size by two-thirds.

The purchase of the Inn Partnership has given the company 1,200 more outlets, bringing its total estate to 3,200 across the country.