South African Breweries has confirmed it is in talks to buy US beer maker Miller, a deal that would create the world's second biggest brewer.
Speculation of a tie-up has intensified in recent weeks in both the British and American press and yesterday the London-listed brewer admitted to being in talks with tobacco giant Philip Morris, which owns Miller.
Shares in the FTSE100 company surged after being forced to issue a statement following the rumours it was lining up a £3.5bn ($5bn) deal. SAB rose 14.5p to 509.5p, valuing it at £4.3bn.
Miller, the second-largest US brewer behind Budweiser maker Anheuser-Busch, had been put up for sale by Philip Morris. SAB is best-known in the UK for Pilsner Urquell. It would acquire stronger brands by taking over Miller.
SAB does not have the cash to spend billions but has plenty of room for debt. It is understood the group would take on $2bn of debt from Philip Morris with the other $3bn being paid in shares. The US conglomerate would then own 25 per cent of SAB.
A move into the American market would also represent an offensive play against exposure to the Rand. The company, which makes nearly two-thirds of the beer brewed in South Africa, has seen earnings suffer because of the bombed-out South African currency.
SAB traditionally focuses on emerging markets such as China and central America, and US territory and a mature beer market would mark a change in strategy.
Scottish & Newcastle, Britain's biggest brewer, has also been mentioned alongside SAB and Miller in a possible three-way merger.
Some analysts have speculated other global players such as Interbrew or Heineken might make a pre-emptive strike for SAB before a deal with Miller could take place.
Related stories:
SAB eyes US brewer Miller (18 March 2002)
S&N + SAB + Miller = world's biggest brewer (29 January 2002)