South African Breweries buys Miller

New brewing company will be second largest in world

May 30, 2002 - The long-anticipated sale of Miller Brewing Co. to South African Breweries was announced today. Miller's current owner, cigarette-maker Philip Morris Cos., agreed to sell the brewing operation for $5.6 billion, slightly more than the $5 billion price tag discussed in pre-deal stories.


The combined company will be renamed SABMiller PLC after the sale is final, which is expected to occur by July.

South African Breweries will keep Miller's corporate headquarters employees, in Milwaukee, said Miller President and Chief Executive Officer John Bowlin. The company also plans to continue operating Miller's seven U.S. breweries.

"For Miller, for the most part, it's going to be business as usual," Bowlin said in an interview.

SAB will take a 64% stake in Miller for $2 billion in assumed debt and $3.6 billion in stock. Philip Morris Cos. initially keep a 36% stake in Miller, and has agreed not to sell any remaining shares until June 2005.

In a story in the Wall Street Journal, Philip Morris CEO Louis Camilleri said the deal gives his company more options. "We could clearly increase our stake and make beer a significant third leg," in addition to the company's tobacco and food businesses, he said. Or, "we could exit in an orderly and profitable manner."

Miller has been losing market share in the United States, but now Philip Morris owns a stake in a large, and growing, beer company that has the scale to compete effectively around the globe.

Bowlin is optimistic the combined company - which will be the world's second-largest brewer, with an estimated annual sales volume of 102 million barrels and revenue of $9.3 billion - bring a sharper strategic focus to Miller, which now accounts for only about 5% of Philip Morris' profits.

"We are going to go from being a small part of a huge consumer packaged goods company to being a key component in the world's second-largest brewer," Bowlin said. "We are going to be a company that's totally focused on brewing, marketing and selling beer."

Among the benefits:

- Improved operating practices and sales execution. SAB grown rapidly beyond its African base by acquiring breweries in Eastern Europe, Asia and Central America over the past five years, introducing new efficiencies in each case.

- Introduction of Pilsner Urquell, the well-regarded Czech beer, into the Miller distribution system. Bowlin said PU is an excellent complement to Miller's current main import, Foster's Lager.

- Bowlin expects SABMiller to spur increased overseas sales of Miller Genuine Draft, Miller's main exported brand.

- For South African Breweries, the deal provides a major operation in the United States, the world's most profitable beer market. It allows the company to build a global scale and diverse earnings base in competing with other consolidating international brewers, such as Belgium-based Interbrew (which will drop from No. 2 to No. 3 worldwide after this deal is complete) and Holland-based Heineken (which will fall to No. 4).

SAB currently has less than 0.1% of the U.S. market. Miller's U.S. market share at the end of 2001 was 19.6%, well behind Anheuser-Busch's 48.6% share.

Miller spent $239 million on advertising in 2001, compared with $191 million in 2000 and $164 million in 1999 Anheuser-Busch spent $328 million in 2001, compared with $353 million in 2000 and $317 million in 1999.

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