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Proposed transaction between SAB plc and Philip Morris regarding Miller

30 May 2002

South African Breweries plc (“SAB”) has announced today that it has entered into an agreement with Philip Morris Companies Inc. (“Philip Morris”) under which SAB will acquire 100 per cent. of Miller Brewing Company (“Miller”) (the “Transaction”). In consideration, SAB will issue to Philip Morris 430 million shares. The pre-market speculation implied enterprise value of Miller is US$4,993 million, including net debt of US$2,000 million. It is proposed that the combined entity will be called SABMiller plc (“SABMiller”).

SABMiller will:

  • be a leading player in the US market, the brewing industry’s largest profit pool;
  • have a balanced geographic spread of earnings from both high growth developing markets and cash generative developed markets;
  • enjoy an international portfolio of strong brands; and
  • become the world’s second largest brewer, with pro forma 2001 lager volumes in excess of 120 million hectolitres.

In addition, benefits arising from the transaction will include:

  • strong cash flow generation showing pro forma adjusted EBITDA for the 12 months to 31 March 2002 of US$1,512 million;
  • an improved credit profile with a significantly lower cost of capital;
  • the ability to continue to participate in the ongoing consolidation of the global beer market; and
  • the benefits of having Philip Morris as a supportive long-term shareholder.

The transaction will be earnings enhancing in year one pre-goodwill amortisation and before synergies, and is expected to deliver annual cost synergies of US$50 million by the end of year three.

Commenting on the proposed transaction, Graham Mackay, Chief Executive of SAB, said:

This transaction, by which Miller will be merged into the SAB businesses, represents a new chapter in our development, taking SABMiller to the number two position globally, and positioning us to be a major participant in the ongoing consolidation of the global beer industry. The transaction will provide access for SAB to a significant position in the US market, which enjoys the brewing industry’s largest profit pool. Furthermore, it will enhance SAB’s international brand portfolio.”

In addition, Louis Camilleri, Chief Executive Officer of Philip Morris, said:

“We are delighted with today’s announcement, which is strategically compelling and is in the best interests of our shareholders. SABMiller will immediately become the world’s second-largest brewer, with arguably the best geographical footprint among all global brewers. The Enlarged Group will have the ambition, as well as the financial and managerial capability, to become the world’s leading brewer.”

John D. Bowlin, President and Chief Executive Officer of Miller, said:

“Everyone wins through this dynamic combination, including Miller’s employees, customers and distributors. We are combining two great brewers with distinct yet complementary assets and talents with the promise to become greater than the sum of the parts. Miller is a great American brewer that will now become part of a focused, global brewing enterprise with significant growth opportunities around the world.”

SABMiller will be well positioned within the global brewing industry. From the outset, SABMiller will be the world’s second largest brewer with leading market positions in Europe, North America, Central America, China and Africa. This diverse exposure to both developed, cash generative markets as well as to fast growing developing markets provides exciting growth prospects for the Enlarged Group.

In addition, SABMiller will benefit from the combination of global scale, a strong management team, a diverse and balanced earnings base, a broad portfolio of leading brands and a supportive, long-term shareholder. SABMiller will use these advantages to position itself at the forefront of the consolidating brewing industry.

The consideration will be satisfied by the issue to Philip Morris of 430 million SAB shares. The shares issued to Philip Morris comprise two classes of equity capital; Ordinary Shares and unlisted low voting participating shares (“Participating Shares”). These combined will equate to an economic interest of 36.03 per cent. (excluding the shares owned by Safari Limited). Philip Morris’ total voting rights have been capped at 24.99 per cent. of the votes exercisable at a general meeting.

Assuming the same value for both the Ordinary Shares and Participating Shares, the closing middlemarket price of 490 pence per Ordinary Share as at 14 March 2002 (the last date prior to market speculation that SAB was in discussions with Philip Morris regarding Miller), a £/US$ exchange rate of 1.4204, and net debt of not more than US$2,000 million at Completion, Miller has an implied enterprise value of US$4,993 million. Based on the closing middle-market price of 576 pence per Ordinary Share as at 29 May 2002 (the date prior to the announcement of the Transaction) and on an £/US$ exchange rate of 1.4623, Miller has an implied enterprise value of US$5,622 million.

Philip Morris will have an important investment in the Enlarged Group, and will be a supportive longterm shareholder in SABMiller. Accordingly, Philip Morris has agreed to be subject to a standstill agreement until December 2004 and a lock-up until June 2005. Following this lock-up period, Philip Morris has agreed to enter into orderly marketing arrangements concerning any disposal of its shareholding.

Graham Mackay and Malcolm Wyman will be Chief Executive and Chief Financial Officer of SABMiller respectively, with John Bowlin, currently President and Chief Executive Officer of Miller, to be responsible for SABMiller’s business in the US and Central America. It is intended that the Board of SABMiller will consist of two executive Directors and eleven non-executive Directors. At Completion, Philip Morris is entitled to nominate three of the non-executive Directors.

SABMiller will maintain its existing primary listing on the London Stock Exchange, with its continued inclusion in the FTSE 100 Index, and will likewise maintain its listing on the JSE Securities Exchange South Africa, where it is included in the JSE 40.

In order to maintain the future financial flexibility of the Enlarged Group, the Board of SAB is seeking the approval of Shareholders at the Extraordinary General Meeting for the disapplication of preemptive rights on an equity raising, depending on market conditions, for cash up to a maximum of 170 million Ordinary Shares, which would represent approximately 14 per cent. of the enlarged equity share capital. Philip Morris has agreed not to participate in this potential equity raising. This resolution will be valid until the conclusion of the 2003 annual general meeting. In the event of any such equity raising, qualifying shareholders, being shareholders on the register at a date yet to be fixed, who duly evidence their holdings will receive a greater allocation of shares, on a basis to be determined, than they would otherwise have received.

The Transaction is conditional, inter alia, upon the approval of Shareholders and certain regulatory clearances. The approval of Shareholders will be sought at an Extraordinary General Meeting, the notice of which will be set out in a circular to Shareholders. The Extraordinary General Meeting is expected to be convened on 1 July 2002.

JPMorgan is acting as financial adviser to SAB and Cazenove and JPMorgan are acting as joint corporate brokers. Dresdner Kleinwort Wasserstein and Lehman Brothers Inc. are acting as joint financial advisers to Philip Morris.

This summary should be read in conjunction with the full text of the following announcement. There will be a presentation to analysts at 9.30 a.m. today (30 May 2002) in the Ayres Room, 8th Floor, Deutsche Bank, 85 London Wall, EC2M 7AD and at 12 noon today for the media at the same location.

Should analysts be unable to attend the analysts’ presentation in person, there will be a dial in facility available. The Investor Relations department of SAB will distribute details of this facility.

The analysts’ presentation will have a replay facility available from noon today until close of business on 6 June 2002, which may be accessed as follows:

From the UK Dial in: 020 8288 4459 Access code: 617172
From the US Dial in: +44 20 8288 4459 Access code: 617172

For further information, please contact:

South African Breweries plc
   
Nick Chaloner Director of Communications Tel: +44 20 7659 0119
    Mob: +44 7880 502 755
     
Anna Miller Salzman Head of Investor Relations Tel: +44 20 7659 0106
     
Ciaran Baker Head of Corporate Tel: +44 20 7659 0120
  Communications Mob: +44 7979 954 493
     
Fergus Wylie Cubitt Consulting Limited Tel: +44 20 7367 5103

This announcement, a copy of the slide presentation and video interviews with management are available on the SAB website at www.sabplc.com and at www.cantos.com

Pictures for the media are available from www.newscast.co.uk

Financial Adviser and Corporate Broker Corporate Broker
   
JPMorgan Cazenove
Julian Oakley David Mayhew
Managing Director Chairman
Tel: +44 20 7325 6287 Tel: +44 20 7588 2828
Ian Hannam Roger Lambert
Chairman, ECDM Europe Managing Director
Tel: +44 20 7325 1168 Tel: +44 20 7457 3347

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