Philip Morris Sells Miller to South African Breweries

Philip Morris(MO) said on Thursday that it was selling Miller Brewing to South African Breweries in a deal worth about $5.6 billion to form the world's second-largest brewer.

The sale will include $3.6 billion in stock and $2 billion in Miller debt, and upon completion, South African Breweries will change its name to SABMiller. The combined company, which will be headquartered in London, would have had 2002 pro forma EBITDA of $1.2 billion on beer sales volume of 102 million barrels.

Philip Morris will receive 430 million shares of SABMiller, giving it a 36% ownership stake in the combined company. Also, the assumption of Miller debt is expected to free up about $1.7 billion for Philip Morris to use in its share repurchase program. Philip Morris said that the combination of the transaction and the accelerated share repurchase program is expected to be neutral to 2002 and 2003 earnings, and the company reiterated its projection of 9% to 11% EPS growth in 2002.

SAB said the deal should increase earnings in the first year before goodwill, and it is expected to create annual savings of $50 million by the end of year three.

In a press release, Philip Morris said, "SABMiller will immediately become the world's second-largest brewer, with arguably the best geographic footprint among all global brewers. The enlarged group will have the ambition, as well as the financial and managerial capability, to become the world's leading brewer." The biggest beer company will still be Anheuser-Busch(BUD).

The deal, subject to regulatory and shareholder approval, would close in July.

Shares of Philip Morris were trading up 9 cents to $56.10 in premarket action on the news, while shares of SAB fell 3.2% in London and 3.26% in Johannesburg.

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