Philip Morris Said to Be Near Deal to Sell Miller

Philip Morris Cos. is close to an agreement to sell its Miller Brewing Co. to South African Breweries for about $3 billion, people familiar with the transaction said Wednesday.

An announcement of the purchase is expected to come as early as today, the sources said.

SAB would pay $3 billion in stock and assume $2 billion in debt from Miller, the maker of Miller Lite and Miller Genuine Draft, the sources said. The board of London-based SAB met Wednesday to review the transaction, they said.

SAB Chief Executive Graham Mackay is betting he can turn around more than two decades of falling market share at Miller, which failed to counter the catchy ads and expanded distribution network of Anheuser-Busch Cos., analysts said. Mackay has spent about $2 billion in two years to buy rivals in emerging markets such as China as sales fell in South Africa, SAB’s biggest market.

“Miller gives SAB massive exposure to the U.S. beer market,” said Merrill Lynch & Co. analyst Martin Feldman, who rates Philip Morris “near-term strong buy” and doesn’t own any shares.

Nick Chaloner, a spokesman for SAB, and Miller’s Scott Bussen declined to comment. Philip Morris also declined to comment.

SAB had confirmed in early April that it was in talks to buy Miller.

Philip Morris, based in New York, rose 91 cents to $56.01 on the New York Stock Exchange. The stock has gained 5.3% since the talks were confirmed.

Miller would give SAB income in dollars, investors said, and that would help SAB counter declines in South Africa, where a more than 50% slide in the rand has contributed to two straight years of falling profit.

For Philip Morris, the sale is a “positive strategic move,” said analyst Keith Patriquin of Loomis Sayles & Co., whose $65 billion in assets includes 116,469 Philip Morris shares.

Miller’s share of the U.S. beer market has fallen in six of the last seven years even as marketing spending increased. Its sales fell to 40.6 million barrels in 2001, or 19.7% of the U.S. market, from 44.2 million, or 21.6%, in 1999.

The company accounted for 4.7% of Philip Morris’ $89.9 billion in sales last year. In the first quarter, Miller’s U.S. shipments to retailers rose 1.6% to 9.5 million barrels. Operating income for the unit rose 4.8% to $130 million.