African brewer confirms Miller approach

SAB has grown through acquisitions

South African Breweries (SAB) has confirmed that it is in talks with the tobacco giant Philip Morris about buying its Miller Brewing company.

SAB said the talks with the US-based brewer were "at a preliminary stage and no conclusions have been reached".

On Wednesday, the Wall Street Journal reported that SAB was to buy Miller for $5bn (£3.5bn) in shares and cash.

A combination of SAB and Miller would create the world's second largest brewer, and give SAB a toe-hold in the US market.

The company is keen to extend its operations further from South Africa and away from the bottom-line trouble caused it by the weakness of the rand.

Expansion

If the merger were to be completed, the resulting group would include SAB's Castle Lager and Pilsner Urquell, as well as Miller's own brand beers and its Milwaukee brands.

Shares in SAB jumped on the news. In Johannesburg its shares rose 5.8% to 83.50 rand, while in London its shares climbed 4.8% to 519p.

Rumours about merger talks involving SAB have been rife for some time.

As it confirmed the discussions with Philip Morris, SAB said it had been also been talking "with a number of third parties" about consolidation in the beer industry.

David Shapiro at SG Securities said the deal would make sense for SAB as it would increase its geographical spread.

But he said SAB would need to work hard to make the deal a success.

"Miller is a tired brand in America and is losing ground," he said. "It's a brand that needs revitalising."

"The other negative is there are no real synergies in a deal like this, because SAB is in emerging markets."

SAB has brewing interests throughout Africa, as well as eastern Europe, Russia, China, and South America.