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SAB buys Miller to create world’s No 2 brewer

South African Breweries agreed on Thursday to buy Miller Brewing from Philip Morris in a $5,6-billion deal to catapult the enlarged group to number two in world brewing behind Anheuser-Busch.

London-based SAB is paying $3,6-billion in shares to Philip Morris and paying off $2-billion in Miller’s debt, which will give the US Marlboro cigarette and Kraft food group a 36% economic interest in the enlarged brewer, to be called SABMiller.

SAB is the world’s number four brewer with the Castle and Pilsner Urquell brands, and is a major player in Africa, China and eastern Europe. Number six Miller has a fifth of the US beer market, making it number two in the world’s largest beer market after Budweiser-brewer Anheuser-Busch.

In the deal, which followed weeks of talks, Philip Morris will receive 430-million shares in the merged brewing company and the US group has agreed not to sell any shares in the merged firm until June 2005.

SAB says the deal will be earnings enhancing in the first year pre-goodwill and synergies, and will give annual cost synergies of $50 million by end of year three.

SAB shares have reacted favourably since Reuters first revealed the two companies were in talks in mid-March and SAB confirmed it was in discussions with Philip Morris in early April.

SAB shares ended at 570-1/2 pence on Wednesday compared to around 480p in mid-March.

The shares have outperformed the UK stock market by 22% since mid-March the Dow Jones European food and drinks index by 11% in the same time period, with analysts pointing out it gives SAB a better geographic spread of earnings and helps to cut its cost of raising capital.

SAB also reported annual pre-tax profits for the year to March 31 of $606-million against forecasts of $600-666-million, with the figures hit by the weakness of the South African rand against the US dollar. – Reuters

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