Miller Brewing to welcome SAB in £3.5bn agreed takeover

South African Breweries is today expected to unveil a $5bn (£3.5bn) takeover of Miller Brewing of the US alongside its full-year results. Barring last-minute hitches, the transforming deal will be funded with a mix of cash and shares that will see Miller's owner, the US tobacco giant Philip Morris, own up to one-third of SAB.

The market has welcomed SAB's decision to swap its emerging market exposure for the world's number two spot, sending the shares more than 20 per cent higher since details of the deal first emerged.

SAB, which brews Castle and Pilsner Urquell lagers, is expected to part-finance the deal by issuing $3bn of new shares, which will give Philip Morris a stake of between 25 per cent and 33 per cent in the London and Johannesburg-listed group. The remaining $2bn will be debt financed.

SAB, which has been locked in talks with Philip Morris for much of the year, would be transformed into a global business by the acquisition, with interests spanning the US, Honduras, El Salvador, Russia, China, sub-Saharan Africa and eastern Europe.

However, SAB's move into a mature market with declining beer sales and intense competition from the world's number one Anheuser-Busch, the brewer of Budweiser, has divided analysts.

One South African-based analyst said: "It is a huge, huge risk. The odds are quite high that it will be a difficult situation." Others consider the growth prospects unexciting.

SAB's challenge will be to succeed where Philip Morris has failed and turn around Miller, which has underperformed for the past decade, losing market share to Anheuser-Busch. Analysts see few synergies or cost savings, making the $5bn price tag look expensive.

The main benefit will be to reduce SAB's exposure to the South African rand, which has blighted the group's profitability as it has depreciated against the US dollar by more than 30 per cent. The deal is expected to reduce its reliance on rand-denominated earnings from South African beer sales from 54 per cent of group turnover to 32 per cent. Owning the US brewer would also give SAB scope to distribute its own heavier tasting beers through Miller's US network, while increasing global sales of Miller.

The deal represents something of a U-turn for SAB, which since listing in London in 1999 has resisted pressure to find a mature market acquisition.

SAB, which is run by the chief executive Graham Mackay, will reveal today what form its relationship with Philip Morris will take. Analysts see any stake that Philip Morris receives as a potential overhang. SAB's shares closed up 5.5p at 576p.

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