It's no small beer as SAB swallows Miller

THE global beer industry is likely to make way for a new champion at the bar when South African Breweries buys Miller Brewing from Philip Morris this week. Setting aside last-minute hitches, the new SAB will join Anheuser-Busch, Heineken and Interbrew in the ranks of Big Beer.

The market has reacted positively in anticipation, pushing SAB's shares up by about 15% since mid-March. That is despite the fact that there are limited synergies. SAB, under chief executive Graham Mackay, operates in emerging markets while Miller's business is in the US. Moreover, there is a potentially big stock overhang because Philip Morris will own perhaps a third of the combined group.

The positive reaction is largely due to two factors: the mooted $5bn (£3.4bn) price tag is cheap; and the combination will wean SAB off soft-currency earnings, especially the South African rand, and so cut its cost of capital.

SAB's biggest challenge will be to reverse Miller's slow but seemingly inexorable decline in the US. That is why Miller is coming cheap. But, provided that is achieved, attention will switch to SAB's next acquisition. The most likely candidate-is Scottish & Newcastle. There has long been talk of a three-way tie-up between SAB, S&N and Miller. S&N would offer SAB fast-growing operations in emerging markets such as Russia balanced by stable income streams from developed countries. With S&N on the hunt for a chief executive, its strategy may be ripe for review.

SAB will probably want to digest Miller before another big deal. It can probably afford to since rivals - such as Carlsberg and Interbrew - would face UK anti-trust problems if they tried to wolf down S&N.

Perils when 'deal junkies' turn to industry

DO investment bankers make good executives? The track record suggests they don't. Take Jean-Marie Messier, who used to be considered the smartest young banker at Lazard Paris. His time as Vivendi's boss has certainly been exciting. But a frenzy of deals has landed what used to be a staid but solid French utility in a fine old mess.

Or think of John Mayo, the former Warburg banker. He was on the verge of becoming Marconi's chief executive before it became apparent how his string of acquisitions had ripped the company's balance sheet to shreds. He was only deputy chief executive at the time but he was driving the deals.

The same is probably true at France Télécom. Jean-Louis Vinciguerra is only finance director. But the former investment banker structured most of the deals that have left it groaning under e61bn (£39bn) of debt.

Investment bankers can be clever. But most are deal junkies. Their tendency to egg on their clients to make acquisitions can be damaging - especially where the chief executive feels bamboozled by the banker's one-upmanship. But, in most cases, there is a natural check and balance. Industrialists are sceptical of bankers.

Turn bankers into industrialists and that natural check goes. It is like letting kids run rampage in a sweet shop. They gorge themselves.

Not that all the corporate value destruction of recent years can be pinned on investment bankers. For example, Deutsche Telekom chairman Ron Sommer and Sir Peter Bonfield, former boss of BT, weren't bankers. But next time a board thinks of appointing a 'proven deal-maker' as its boss, it should think twice.

Vodafone week

EXCITED City folk are calling this Vodafone week. Will Sir Chris Gent's preliminary results write down the £83bn of goodwill stuck in Vodafone's accounts from his bubble-era takeovers of AirTouch and Mannesmann?

It rather depends what Gent cares about most - his public image or his share price. If he takes a massive write-down, he will be the butt of negative articles. But if he really cares about his share price, he will take the hit.

Sophisticated investors know that a mega-write-down has no effect on the outlook for cash flow, on which they will be focusing. Indeed, they could view a write-down as a healthy coming-to-terms with reality. That could trigger a further recovery in Gent's stock.

Hugo Dixon is Editor of breakingviews.com