Apr 5, 2002 3 min read

LONDON (AP) – South African Breweries Ltd., owner of Pilsner Urquell beer and a strong player in China and other emerging markets, confirmed Thursday it is in talks with Philip Morris Cos. Inc. about buying Miller Brewing Co., the second biggest U.S. brewer. Discussions are in a preliminary stage and no deal has been reached, South African Breweries said.

An acquisition of Milwaukee-based Miller, whose biggest brand is Miller Lite, would be a bold step into the United States for a company that has until now focused primarily on developing markets in Asia, Eastern Europe and Africa.

South African has grown largely through acquisitions, and a deal for Miller would fit with its policy of seeking major investments that offer brand value, economies of scale and distribution benefits.

Miller trails only Anheuser-Busch Cos., the maker of Budweiser and Bud Light, in the U.S. market.

South African confirmed it was in talks with Philip Morris about a “transaction” involving Miller. It added that as part of its strategic development, it is “in discussions with a number of third parties regarding the ongoing consolidation of the beer industry.”

It gave no specifics about other deals it might be considering.

Miller spokesman Scott Bussen refused to comment Thursday. A spokesman for Philip Morris, based in New York, did not immediately respond to calls seeking comment.

The Wall Street Journal had reported Wednesday that a price of about $5 billion was under discussion.

South African Breweries is the world’s fourth-largest brewer by volume, after St. Louis-based Anheuser-Busch, Belgium’s Interbrew and Heineken NV of the Netherlands, according to data from 2000 compiled by British beverage consultancy Canadean. Miller ranks sixth in the world, Canadean said.

David Kathman, a food and beverage analyst with Chicago-based Morningstar Inc., said the deal would give Miller a chance to rebuild its brands.

“Miller has been struggling lately. There’s no one issue, but basically Anheuser-Busch is much stronger and they have a much better distribution system,” he said.

A sale could give Miller more money for advertising, something it needs if it wants to maintain its market share, said Mark Rodman, who owns Beverage Distribution Consultants of Swampscott, Mass.

“Unless Philip Morris is willing to let the Miller people have full access to their deep pocketbook, there’s not enough cash at Miller to play the game,” he said.

South African’s shares closed 3.0 percent higher at 509.50 pence ($7.34) in trading on the London Stock Exchange. Philip Morris shares fell 11 cents to close at $53.19 on the New York Stock Exchange.

South African already exports Pilsner Urquell to the United States and hopes to expand its business there, company spokesman Ciaran Baker said. Its other major brands include Castle in southern Africa, Tyskie in Poland, Zolotaya Bochka in Russia and Zero Clock in China.

The company earned $161 million on $2.18 billion in revenue for the six months ending Sept. 30. It earned $359 million on revenue of $4.18 billion for the 12 months ending March 31, 2001.

South African was reported earlier to be considering a merger with Miller and rival Scottish & Newcastle PLC. If it pulled off such a deal, the combined business would outstrip Anheuser-Busch as the world’s No. 1 brewer.

Baker refused to comment on whether South African was considering such a three-way merger, as did Scottish & Newcastle spokesman Jeremy Blood.

Scottish & Newcastle is Britain’s largest brewer. It owns Kronenbourg, and its biggest export to the United States is Newcastle Brown Ale. It ranked ninth worldwide in 2000.