SAB in talks to acquire Miller for £3.5bn

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The Independent Online

South African Breweries looked poised to swap its emerging market crown for Western market share yesterday after it emerged that the London-listed group was in exclusive talks to buy Miller Brewing of the US for $5bn (£3.5bn).

A deal would create the world's second-largest brewer behind Anheuser-Busch and reduce SAB's exposure to volatile developing markets and weak currencies such as the South African rand. It would also end months of speculation that have seen SAB linked to a string of acquisition opportunities from the UK's Bass Brewers to Belgian's Interbrew.

SAB, which brews Castle lager and Pilsner Urquell, is understood to have reached an advanced stage of talks that would see Philip Morris sell its Miller Brewing division for $5bn, including $2bn of debt. The remaining 60 per cent would be paid for in shares, according to reports. Philip Morris would own roughly a quarter of SAB.

Most analysts welcomed the proposed combination, which comes at a time of heavy activity in the brewing industry. Foreign brewers, such as Interbrew and Adolph Coors, have moved into the UK while Western brewers, such as Scottish & Newcastle and Heineken, have expanded in emerging markets to compensate for declining beer markets at home.

Since listing in London in 1999, SAB, which owns breweries across Africa, China, Russia, South America and Eastern Europe, has come under increasing pressure to stabilise its earnings volatility.

Anthony Geard, at Investec Securities, said: "It may not be the kind of deal that SAB would go for in an ideal world, but this isn't an ideal world."

Jamie Norman, at ABN Amro, said: "It is a pretty straight trade off between excitement and risk and stability and lack of growth." He estimated that Miller's $4.2bn in annual sales would enable SAB to reduce its earnings exposure to South Africa, where it has 99 per cent of the market, from 55 per cent to about 25 per cent.

Philip Morris, which makes Marlboro cigarettes and owns 80 per cent of Kraft Foods, has been looking to sell Miller for the past decade. Louis Camilleri, who takes over as chief executive later this month, is understood to be keen to cut the brewing ties to focus on expanding the group's food and tobacco interests.

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