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SOUTH AFRICA: Analysts cautious but upbeat on SAB/Miller ties

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Confirmation of South African Breweries talks with US brewer Miller saw SAB's share price rise by almost 8% on both sides of the equator last week.

In London, Friday#;s share price closed at 529-3/4p and in Johannesburg it was up to R85.20, after SAB confirmed talks with Miller#;s parent company Philip Morris on Thursday.

SB Securities, James Williamson said that should the deal go through it would decrease SAB#;s WACC by at least 100 bonus points. It would also decrease the group#;s exposure to Rand earnings considerably, mainly through its beer and Coca Cola earnings (through Amalgamated Bottling Industries). It would lower the present EBIT of over 50% to about 30% after a deal is struck.

He said it would also provide a boost in the US to its Pilsner Urquell brand in the imported beer category.

But he warned that SAB management were already stretched and it is unlikely the group would have the expertise to run the Miller business.

“It is vital that they retain and revitalise existing Miller Management and also take cognisance of the spirit cooler market which has beer brands in their sights as they continue rise in that market.

“Overall we will be positive on a deal at a price of US$5bn, assuming the deal goes through.”

In South Africa it was reported that due to the ongoing speculation some brokers, including Merrill Lynch, had upgraded their price targets for SAB to R90.


Companies: SABMiller

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