Merger Could Create World's Largest Brewer

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BOSTON ( -- A union between Miller Brewing Co. and two U.K. brewers would create the world's largest brewing concern, but industry experts envision a merger of also-rans rather than a worldwide
beverage giant poised to shape industry globalization.

An agreement, said to be under discussion among Miller, South African Breweries and Scottish & Newcastle, could give the Philip Morris Cos. unit greater access to thriving imports and foreign distribution. It also would provide SAB and S&N access to Miller's many U.S. wholesalers.

Heavy U.K. beers
Some observers, however, say the U.K. beers are too heavy to sell well here and claim Miller's perennial problems could hamper any partner's growth.

"Sometimes you add a negative and a negative and do not get a positive," said Tom Pirko, president of the beverage consultancy Bevmark.

SAB, S&N and Miller declined to comment. Miller supplies a decreasing 5% of Philip Morris' revenue.

Problem child
Selling or merging

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it could free the tobacco giant of a problem child and let it plow the estimated $5 billion Miller could fetch into better-performing tobacco concerns, said Skip Carpenter, analyst with Thomas Weisel Partners. Should Philip Morris maintain an interest in a new company, as has been suggested, it would benefit if longtime brewers could right the struggling operation.

"These other brewers are in the malt-beverage business, and they will be involved in the long haul, as opposed to [a diverse] Philip Morris," said a Miller ad executive. "[Philip Morris] has been waiting for it to make the turn, and it's not made it." Philip Morris bought Miller in 1970.

The U.S. is the world's largest beer market, but Miller has been retreating here since 1994. No. 2 domestically and No. 6 globally, Miller commands 20% of the U.S. market but only 3.5% globally. Both SAB and U.K. industry leader S&N have a meager U.S. share, according to Beer Marketer's Insights.

Though no deal appears imminent and any could evaporate, Miller has trimmed staff and costs to pretty up its numbers, insiders said. Though 2001 operating income fell 3%, cost-cutting, better volume and higher prices boosted fourth-quarter results, according to Philip Morris. The company's sworn commitment to Miller appeared to flag Jan. 30 when CEO-designate Louis Camilleri told analysts that "we are not oblivious to consolidation in the brewing industry, and we will explore any options that are in the best interest of shareholders."

Looking for other suitors?
One executive close to Miller, though not privy to any talks, suggested the company wants offers from marketers other than London-based SAB, whose largest market is South Africa, and Edinburgh's S&N. Possibilities include the U.K.'s Interbrew, the world's No. 3 brewer, and Brazil's AmBev, No. 4 worldwide.

The globe's top 10 brewers control just 40% of the world market. While beer largely is a regional business -- imports have cachet but local favorites triumph -- many industry observers believe globalization is coming. Coors Brewing Co. in December bought the U.K.'s Carling Brewers; Canada's Molson is being pressured to buy or be bought, and even Anheuser-Busch has had talks with foreign brewers.

"If you don't do deals now, there will be fewer options in the future," one observer said. "There's a sense of urgency."

Staff writer Kate MacArthur contributed to this report.

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