It's now Miller time for SAB

SUN JOURNAL

Sale: South African Breweries is buying the foundering U.S. company for $3.6 billion, which will make it the world's second-largest beer maker.

May 31, 2002|By John Murphy | John Murphy,SUN FOREIGN STAFF

JOHANNESBURG, South Africa - The drink of choice among the first miners to flock to this gold rush town in the late 19th century was a raw potato spirit mixed with tobacco juice and pepper. No wonder the first beer produced by South African Breweries PLC in 1895 was such a hit. Its founders knew a market for beer when they saw it.

During the next century, SAB continued spotting new markets, gobbling up small or struggling breweries in tough corners of the globe where other big companies didn't bother or were too afraid to look. After weathering apartheid-era sanctions, it has emerged as the world's fourth-largest brewer, selling 96 brands of beer in Africa, Eastern Europe, China and Central America.

Yesterday, the brewery announced its boldest - and riskiest - move: buying America's foundering Miller Brewing Co. empire, maker of Miller Lite, Miller Genuine Draft, Miller High Life and Milwaukee's Best, for $3.6 billion in stock. SAB also has agreed to assume $2 billion in debt.

The deal with Miller's parent company, Philip Morris Cos. Inc., will make SAB the world's second-largest brewer behind Anheuser-Busch Co., brewer of Budweiser. The new company will be called SABMiller PLC and is expected to bolster exports of Miller brands.

Miller spokesman Michael Brophy said the buyout would not lead to any job cuts at Miller's seven U.S. breweries. SAB expects to complete the acquisition in July, pending shareholder and regulatory approval.

SAB's shares slipped 0.9 percent to close at $8.34 on the London Stock Exchange. Philip Morris shares rose 57 cents to close yesterday at $56.58 on the New York Stock Exchange.

For beer drinkers, the sale will mean little in the short term. Miller will keep its management team and continue to brew its well-known beers. But SAB officials say they soon will be stocking their brands on more of America's store shelves, making beers such as Pilsner Urquell from the Czech Republic more widely available, along with Tyskie, the No. 1-selling beer in Poland, or China's Snow beer.

SAB will inherit a brewery with a history longer than its own. Miller, based in Milwaukee, dates to 1855, when a German immigrant founded it for $9,000 in gold. In the years since, Miller has become one of the nation's best-known brands. "It's Miller time" is perhaps one of the most recognized advertising slogans around.

But after fast growth in the 1970s when it introduced its line of light beers, Miller has struggled to make a dent in Anheuser-Busch's share of the American beer market. The question is whether South African Breweries can do any better.

Many analysts are not sure. Getting the beer on the store shelves in war-battered countries such as Mozambique - where the roads are sometimes barely passable - is a great feat, but meeting the demands of a market where image is as important as manufacturing and distribution is an altogether different challenge.

"Certainly, they haven't had to demonstrate that they can do this in a market as fiercely competitive and sophisticated as the United States," said Douw Steenekamp, a beverages analyst for Old Mutual Asset Managers in Cape Town.

In South Africa, SAB has never known such competition. Here, it has a stranglehold on beer sales, controlling 98 percent of the market. The company also owns fruit juice, soft drink and other beverage companies as well as interests in gambling and hotel industries.

SAB was not always so dominant. For many years, the black South African majority was forbidden from purchasing commercial beer or liquor - other than traditional sorghum beer, brewed and controlled by state authorities.

The restrictions gave rise to illegal backyard bars, dubbed shebeens, in the country's black townships where people could buy home-brewed beers. It was only after the prohibition laws were repealed that SAB could expand into the black market.

For the young and old in black townships, neighborhood shebeens are still the places to come for a drink and to unwind. Now, however, nearly all the beer consumed in them is produced by SAB.

The Ukhamba Bar Lounge in Soweto, for instance, is decorated with the red-and-gold logos of Castle Lager, the company's flagship beer. Other ads display Hansa and Lion - also SAB brands.

About the only holdouts are the tables filled with old men, who still prefer the traditional beers, no longer produced by SAB in South Africa. On a recent afternoon, dozens of retired men are seated at long picnic tables passing around 2-liter jugs of traditional sorghum beer, a milky drink that looks a little like pancake batter.

"It's like Coke in America. It's our traditional brew. It keeps us going," offers Themba Makkhayan, 62, between gulps of his drink. Other men call it their "morning porridge."

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