Without giving a specific source, the UK paper said top executives from the two companies were understood to have met for preliminary talks since the beginning of February but had yet to agree the terms.

An outline structure, which was still under discussion, was thought to value SmithKline at around 11.50 pounds a share and would include the payment of a substantial special dividend by Novartis to SmithKline shareholders, it said.

This would be an attempt by Novartis to prevent a counter offer from rival UK group Glaxo Wellcome Plc. Company officials were not immediately available for comment. The Sunday Business said an option under consideration was a dual listing of shares in a combined Novartis-SmithKline. Novartis chairman andchief executive Danie Vasalla would be likely to get a top job in any deal, the paper said.

However, J P Garnier, SmithKline's chief operating officer who is expected to replace chief executive Jan Leschly, who retires in September, would be the front runner to head the pharmaceuticals.

SmithKline shares fell sharply last week on profit-taking as recently renewed merger speculation evaporated. The shares closed up 16 pence or nearly two per cent higher on Friday at 835-1/2P. SmithKline has been a perennial takeover target since a planned merger with larger rival Glaxo Wellcome broke down in acrimony last year.

Last weekend, newspaper reports had suggested Glaxo might be reconsidering a tie-up with SmithKline. The Sunday Business said Leschly's retirement was regarded within Glaxo as a possible trigger to reopen negotiations.

Top 3 UK cable cos plan merger

Britain's top three cable companies -- Cable & Wireless Communications, Telewest and NTL are discussing a $ 48 billion merger, TheMail on Sunday newspaper reported. The groups have also invited Deutsche Telekom and France Telecom to consider joining, it said.

Quoting high-ranking industry officials, the paper said a merger would create a cable industry giant with the clout to challenge BT and BSkyB, the Pay-TV company, in Britain's telecom and home entertainment markets. The companies involved want the French or German telecom group to inject about 5 billion pounds into the project.

Along with CWC, the group would include US software giant Microsoft, which already owns 29.9 percent of Telewest and could end up with close to 10 percent of the merged group, The Mail said. Another partner would be Liberal Media, also involved in Telewest, but run independently by the US cable industry baron John Malone. The proposed merger was unlikely to face regulatory hurdles because BT and Rupert Murdoch's BSkyB would still offer fierce competition, the paper said.