May 31, 2002 4 min read

By Bruce Stanley AP Business Writer

LONDON (AP) – Building on its strength in Asia and Africa, South African Breweries PLC splashed into the U.S. beer market Thursday by announcing an agreement to buy Miller Brewing Co. for $3.6 billion in stock.

The buyout would lift SAB, the world’s fourth-largest brewer by volume, into second place, and make it a much tougher competitor for No. 1 Anheuser-Busch Cos. The new company, to be called SABMiller PLC, would also likely boost exports of Miller brands outside the United States.

“This is a deal that reshapes the top tier of the global brewing industry,” SAB chief executive Graham Mackay said.

SAB agreed to assume $2 billion in Miller debt, raising the acquisition’s total value to $5.6 billion. Miller’s parent company, Philip Morris Cos. of New York, would keep a 36 percent stake in SABMiller and intends to remain a long-term shareholder.

Miller spokesman Michael Brophy said the buyout would not lead to any job cuts at Miller’s seven U.S. breweries. SAB expects to complete the acquisition in July, pending shareholder and regulatory approval.

SAB’s shares slipped 0.9 percent to close at 571 pence ($8.34) on the London Stock Exchange. Philip Morris shares rose 74 cents to $56.75 in afternoon trading on the New York Stock Exchange.

The Miller buyout marks a major step in SAB’s strategy of expanding largely through acquisitions to become a top player in the consolidating global beer business.

Miller was founded in 1855 in Milwaukee, a city renowned for its breweries. SAB, though it may not be well known in the United States, has brands that dominate Africa and are among the market leaders in China, Russia and much of Eastern Europe.

SAB exports Pilsner Urquell, a Czech lager, to the United States. U.S. sales of Pilsner Urquell surpassed 2.6 million gallons in 2001, about double the previous year’s level but still less than half a percentage point of all beer sold in the United States. Mackay said he hopes SABMiller can increase these sales by selling Pilsner Urquell through Miller’s distribution channels.

The company’s other major brands include Castle in southern Africa, Tyskie in Poland, Zolotaya Bochka in Russia and Zero Clock in China.

SAB ranks fourth in terms of beer volumes sold, behind St. Louis-based Anheuser-Busch, Belgium’s Interbrew and Heineken NV of the Netherlands. Miller ranks seventh in the world.

By buying Miller, SAB would be taking its largest leap yet into a mature beer market.

The United States is “by far the most attractive beer market in the world,” Mackay said. It’s the biggest, and – unusually for a mature market – it has continued to grow.

Miller claims 20 percent of U.S. beers sales, behind Anheuser-Busch’s 49 percent and ahead of Coors’ 11 percent share.

The acquisition also will reduce SAB’s dependence on earnings made in the rand, South Africa’s weak currency, Mackay said.

SABMiller would be headquartered in London, with Miller’s Milwaukee, Wis., headquarters operating as a subsidiary.

Given the trend of consolidation in global brewing, SAB seems to have made a shrewd move in targeting Miller, said Rey Wium, a beverages analyst in Johannesburg, South Africa, for ING Financial Markets.

“With Miller they can be the driving force. If they had to tie up with someone like Interbrew or Heineken, they would have had to play second fiddle,” he said.

A key question, however, is whether SAB’s experience in emerging markets is adequate preparation for the much more developed U.S. market.

“That’s why it’s good to keep the Miller management in place,” Wium said.

Miller chief executive John Bowlin said his company is completing a strategic turnaround during which it dumped underperforming brands such as Lowenbrau and Molson and began concentrating on core brands including Miller Lite and Miller Genuine Draft.

Bowlin, who would be in charge of SABMiller’s U.S. and Central American operations, said he looked forward to becoming part of a company whose main focus is beer. As part of Philip Morris, Miller accounts for less than 5 percent of the company’s total business.

SAB already brews Miller under license in Russia and plans to do so soon in Poland. Analysts said SABMiller would likely become more aggressive in selling Miller’s leading brands overseas, although SAB spokesman Ciaran Baker said he knew of no such plans at this time.

Philip Morris has wanted to sell its beer business because Miller has lost market share over the past decade, analysts said.

Philip Morris chief executive Louis Camilleri told industry analysts last fall that the tobacco and consumer goods group’s beer profits had dropped as sales declined and advertising costs increased for Miller’s strongest brands.

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On the Net:

Miller Brewing Co.: http://www.millerbrewing.com/

South African Breweries: http://www.sabplc.com/