Brewer to snap up Miller for $5.6B

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SAB gains U.S. foothold with acquisition of Miller from Philip Morris

LONDON, England (CNN) -- South African Breweries has agreed to buy Miller Brewing from Philip Morris of the U.S. for $5.6 billion.

The acquisition would create the world's second-largest brewer behind Budweiser-brewer Anheuser-Busch. SAB, which will change its name to SABMiller, will pay $3.6 billion in stock and take on Miller's debt of $2 billion.

London-based SAB (SAB) hopes the deal will cut its reliance on earnings made in the ever-weakening South African rand and improve the company's rating with reliable earnings from Miller in the U.S.

"South African Breweries traditionally has been very much in the emerging markets and what Miller will bring is a very big mature market business primarily in the United States," Ian Shackleton, analyst at CSFB, told CNN.

"It will bring brands and it will bring brands marked in skills and it will give a much better mixture of risk and reward across the world of beer."

CNN NewsPass VIDEO SAB agreed to buy Miller. Adrian Smith looks at the reasons for the move. Play video Graham Mackay, CEO of SAB, talks to Richard Quest about the deal Play video

SAB, which brews Castle and Pilsner Urquell beers, is currently ranked number four in the world and markets its brands in Africa, China and Eastern Europe, while Milwaukee, Wis.-based Miller, whose brands include Miller Lite and Miller Genuine Draft, is the second largest brewer in the United States and sixth largest in the world.

"The transaction will provide access for SAB and its shareholders to a significant position in the U.S. market, which enjoys the brewing industry's largest profit pool," SAB Chief Executive Graham Mackay said in a statement.

Philip Morris, the world's biggest cigarette manufacturer, will own 36 percent in the new SABMiller and have a 25 percent voting right at shareholder meetings. Philip Morris (MO), the maker of Marlboro cigarettes and owner of Kraft foods, will receive 430 million SABMiller shares and has agreed not to sell before June 30, 2005.

SAB has set its eyes on the world stage, becoming the largest non-Chinese brewer in China. It is following the same strategy with Miller, buying a domestic brewer and shaping its beer production rather than introducing its own brands, such as Castle, the best-know South African beer brand.

SAB 's stock fell 2.4 percent to 556.3 pence in early London trading on Thursday.