SAB buys Miller to become world's number two brewer

Philip Morris, the tobacco-to-food group, has agreed to sell its Miller brewing unit to the London-listed South African Breweries, a move which will turn SABMiller into the world's second largest brewer behind US rival Anheuser-Busch but ahead of strong European players such as Heineken and Interbrew, South American giant AmBev and Asian leaders Kirin and Asahi.

The deal is valued at around $5.6 billion (€5.97bn), and is expected to close in July, provided regulatory approval is forthcoming.

Philip Morris said it would retain a 36 per cent stake in the merged group, which is expected to have earnings before interest, taxes and amortisation (EBITA) of around $1.2 billion on beer sales of 120 million hectolitres for the year ended 31 March 2002.

Philip Morris has also pledged to remain a long-term shareholder in the brewer, agreeing not to dispose of any shares until 30 June 2005 and not to purchase any further interest until 31 December 2004.

SABMiller will continue to be headquartered in London, and will be led by Graham Mackay, the current chief executive of South African Breweries. John D. Bowlin, the current president and chief executive officer of Miller, will be responsible for SABMiller's businesses in the Americas.

SAB, the world's fourth largest brewer, has been looking for a potential takeover target for some time in a bid to expand its business beyond its traditional strongholds of Africa, China and Central and Eastern Europe. The deal with Miller, the world's number six brewer, will give it new market positions in North and Central America.

Mackay called the move "a new chapter in our development, taking SABMiller to the number two position globally, and positioning it to be a major participant in the on-going consolidation of the global beer industry"​

He added: "The transaction will provide access for South African Breweries and its shareholders to a significant position in the US market, which enjoys the brewing industry's largest profit pool. Furthermore, it will enhance South African Breweries' international brand portfolio."​

As well as SAB's Castle and Pilsner Urquell brands, among others, the new group will also distribute Miller Genuine Draft, Miller Lite, Milwaukee's Best and a range of malt beverages.

All that remains now is for the group to grow its business in the competitive market in Western Europe, where local giants such as Heineken, Interbrew, Carlsberg and Scottish & Newcastle dominate. SAB has often been linked with major Western European brewers in the past - such as Whitbread and Bass in the UK which eventually went to Interbrew - and with consolidation continuing apace in Europe the possibility of further growth there cannot be ruled out.

For the moment, however, the newly created group is likely to consolidate its position and concentrate on expanding distribution through its extended new network.