Miller/SAB negotiations continue, but PM's Camilleri says there is "no certainty" of deal - Miller Brewing Co., South African Breweries Ltd., Philip Morris Cos.' CEO Louis Camilleri - Brief Article

Modern Brewery Age, April 29, 2002

AP--Miller Brewing Co., reporting a first-quarter sales increase, says the lid is still on any potential sale to South African Breweries Ltd.

Miller's parent firm, Philip Morris Cos., will continue to explore selling the brewer but has not yet reached a deal, incoming Philip Morris CEO Louis Camilleri said.

"We will explore any transactions that we deem favorable both to our shareholders and the continued growth of Miller on a global basis," he said.

New York-based Philip Morris confirmed several weeks ago it was negotiating a sale of Miller to South African Breweries, the brewer of Pilsner Urquell beer and a strong player in emerging markets.

However, international analysts have suggested that the asking price of $5 billion might be considered somewhat too high by SAB. The measured pace of the negotiations may mean the South Africans are trying to knock down the price a bit.

"There's no certainty that those discussions will lead to any agreement," Camilleri noted.

Some U.S. Beer industry analysts expected the sale announcement would have come last week when Philip Morris released its earnings.

Instead, Camilleri said he was pleased with Miller's improved performance in the first quarter.

Miller's U.S. sales volume was 9.5 million barrels, up 1.6 percent from the same quarter a year ago, according to financial results released Wednesday by Philip Morris.

Miller's operating profit increased 4.8 percent to $130 million, compared with the same period last year.

"We feel that the turnaround is on plan," Camilleri said.

He told industry analysts last fall the tobacco-food giant's beer business has continued to face challenges. Profits have dropped as sales declined and advertising costs increased.

Increased shipments of Miller's core brands and the company's introduction of SKYY Blue drove the higher sales volume, Camilleri said.

SKYY Blue is the first of four "malternative" drinks that Miller is marketing this year. SKYY Blue, like beer, has a malt base but is a clear drink flavored with essences of SKYY vodka and citrus.

Sales of SKYY Blue made up for declines in some of Miller's lower-priced brands, Camilleri said. Miller's increased profit was partially offset by higher marketing expenses Philip Morris spent on SKYY Blue and Miller's core brands, including Miller Lite and Miller High Life.

Philip Morris has worked to improve Miller's performance "mainly to make it more attractive for a sale," said David Kathman, a food and beverage analyst with Chicago-based Morningstar Inc.

Analysts say a sale would benefit Miller, the nation's second-largest brewer behind Anheuser-Busch Cos.

"The Miller labels have to do a fast turnaround or they clearly will slide too deep to be resurrected," said Mark Rodman, who owns Beverage Distribution Consultants of Swampscott, Mass.

South African Breweries would give Miller a parent company more focused on beer, Kathman said.

Miller Brewing started in 1855 in Milwaukee, a city known for its beer-making history. Analysts doubt a sale to South African Breweries would affect the city whose baseball team plays in Miller Park.

South African Breweries is the world's fourth-largest brewer by volume, after St. Louis-based Anheuser-Busch, Belgium's Interbrew and Heineken NV of the Netherlands, according to 2000 data compiled by British beverage consultant Canadean. Miller ranks sixth worldwide. SAB has been growing rapidly through acquisitions in developing markets.