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Thursday, 30 May, 2002, 08:55 GMT 09:55 UK
African brewer seals Miller takeover
Castle customers
SAB has grown through acquisitions
South African Breweries has sealed the takeover of US beer giant Miller for $5.6bn to create a new force in world brewing.

The takeover will create the world's second biggest brewer - named SABMiller - producing 12 billion litres of beer a year.

And the new group is poised to seize the number one spot from Anheuser-Busch, said Louis Camilleri, chief executive of tobacco giant Phillip Morris, which sold Miller.

"The enlarged group will have the ambition... to become the world's leading brewer," Mr Camilleri said.

The deal will bring within one firm, employing 38,000 people, SAB brands such as Castle, Lion and Pilsner Urquell, and a Miller US portfolio including Miller Lite, Milwaukee's best and Foster's.

Expansion drive

The announcement follows considerable speculation about the deal, which will allow South African Breweries, founded in 1896, the year after Johannesburg was established, to further spread its base beyond troubled African markets.

A separate statement released on Thursday, showing earnings down 6%, warned of "socio-political problems, currency weaknesses and certain competitive pressures" in African markets.

A decade of international expansion since the ending of Apartheid opened South African trade has seen the firm expand into countries such as China, and gaining a listing for its shares in London.

But the firm had yet to gain a firm foothold in the US market, which SAB said was "the world's largest and most profitable".

"And unlike many other developed markets, [the US] has delivered recent growth in consumption," SAB added.

Miller, the US's second largest brewer, and seen by analysts as an underperforming operation, will gain the chance to spread its brands into international markets.

Philip Morris will gain a 36% shareholding in SABMiller as part of the deal, allowing the tobacco giant to benefit from the "strategically compelling" takeover.

'Question mark'

The combined firm would have boasted underlying profits of $1.5bn for the year to the end of March, compared with the $766m reported on Tuesday by SAB alone.

Indeed, the deal will place the US as the group's most important market, ahead of South Africa, Thursday's statement said.

But the deal received a cautious welcome from analysts, who stressed the importance of improving the performance of the Miller unit.

"There will always be a question mark hanging over the leopard changing its spots from a very capable emerging market player to a player with a big chunk of underperforming developed assets," said Renier Swanepoel, of UBS Warburg, in Johannesburg.

Gavin Vorwerg, of Deutsche Securities in Johannesburg, said the $5.6bn price tag was higher than he had expected.

SAB shares stood 19p lower at 557p in morning trade in London, where they have their primary listing.

Currency challenge

In its profits statement, SAB blamed its earnings decline on the weakness of African currency, and in particular the "extraordinary" collapse of the value of South Africa's rand.

"SAB's underlying operations around the world, despite a global economic slowdown, have delivered an impressive performance," chairman Meyer Kahn said.

Total sales, including trade in soft drinks such as Appletise, grew 15.5% by volume over the year to the end of March.

The previous year's decline in beer sales in the key South African market was "arrested".

The firm saw global economic recovery boosting future earnings.

"Europe's forward momentum, while moderating should continue and better results are expected from both Africa and China," Thursday's statement said.

The BBC's Quentin Sommerville
"This deal gives SAB unprecedented scale"
John Bowlin, CEO Miller and Graham McKay, CEO SAB
"This new entity will be focused on beer and beer issues."
Martin Feldman, Merill Lynch in New York
"This deal makes sense."
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