Diageo said yesterday it was in talks to merge its Pillsbury US food unit with General Mills Inc in an expected $10.5 billion (€11.2 billion) share-swap deal which will also give the British group some cash.

The deal will leave Diageo with a sizeable 30-40 per cent minority share in the merged US food group, and follows closely on the group's plans to float off its hamburger chain Burger King, announced last month.

A merger between the two Minneapolis-based food companies will allow Diageo to focus on its UDV wines and spirits unit and Guinness beer division - which currently accounts for two-thirds of group profits - and still benefit from the on-going restructuring of the US food industry.