South African Breweries Plc Chief Executive Officer Graham Mackay made his biggest acquisition by far with the agreement to pay US$5.6 billion for Miller Brewing Co The follow-up: He's searching for more.
"We'll look to fill in our positions around the world and also look at larger transactions with broader geographical spread as they come available," he said on a conference call. "There's still a lot to be done on the world stage."
The purchase from Philip Morris Cos more than doubles South African Breweries sales, raising it to the world's second-largest beermaker from No. 5. Miller gives London-based South African Breweries 20 percent of the US market.
PHOTO: BLOOMBERG
Until now, Mackay has focused on beermakers in Eastern Europe, Latin America and Asia, spending US$2 billion over two years to cut the company's dependence on South Africa, where the rand's 40 percent decline in value has contributed to a similar drop in profit.
"SAB will become less dependent on results from South Africa and strengthen its position in mature markets," Anneke Groen, a beverages analyst at Rabo Securities wrote in a note.
Mackay, 52, the father of five sons, takes on the challenge of a brewer whose market share has shrunk for two decades in the face of competition from industry leader Anheuser-Busch Cos. The maker of Budweiser accounts for half of US beer sales.
PHOTO: BLOOMBERG
"I don't think it's going to be easy to turn around Miller," said Clyde Rossouw of Investec Asset Management, which has US$13 billion in equities, including South African Breweries. "The fact that Philip Morris worked so hard shows it won't be easy."
The declining market share should have enabled Mackay to achieve a lower price, some investors said. He's paying 10.6 times earnings before interest, taxes, depreciation and amortization.
US No. 3 Adolph Coors Co paid 8.5 times Ebitda for the UK-based Carling brand this year, though the purchase was in cash.
Mackay says the main attraction for the maker of Castle Lager and Pilsner Urquell is the dollar-denominated revenue Miller will provide for more purchases.
"We don't care if we ever catch Anheuser-Busch," he said.
This is "a very profitable business. As long as there's stability and some growth, it's delivering the minimum we've hoped for." The takeover will add to earnings in the first year, he said.
South African Breweries may now consider buying Scottish & Newcastle Plc, the UK's biggest brewer, or Carlsberg A/S of Denmark, said Stuart Price, an analyst at WestLB who has a "long-term buy" recommendation on the stock.
Since Mackay transferred his company's main listing to London from Johannesburg in March 1999, the shares have risen 28 percent.
That compares with a 6.4 percent drop for Scottish & Newcastle.
Both stocks trade at 16 times expected earnings, compared with 23 for Anheuser-Busch, whose shares gained 33 percent in the period.
Mackay, who drives an Alfa Romeo Spider, started at South African Breweries as a systems manager in 1978, before going on to manage the beer division. He made chief executive in 1999, a job that paid him a salary and bonus of Pds612,000 (US$897,000) in 2000, the latest period for which figures are available.
He has homes in Britain and South Africa and divides his time between the two countries, as well as making visits to some of the company's 108 breweries in 24 nations. He now adds Milwaukee, home of Miller Brewing, to that list.
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