SABMiller, the UK-based brewer, is preparing to become the second-largest company of its type in South America after unveiling plans to take over Grupo Empresarial Bavaria, which is controlled by the billionaire Santo Domingo family, in a deal worth $7.8 billion.

SABMiller, which brews Carling Black Label, Miller Lite and Peroni, will take control of a company that brews local brands in Colombia, Peru, Ecuador and Panama including Aguila, Cristal, Pilsener and Atlas.

Bavaria, which is listed on the Colombian Stock Exchange, has equity that has been valued at $4.8 billion, which alongside debt of a further $3 billion takes the total enterprise value of the group to $7.8 billion.

Last year, Bavaria reported profits before tax and exceptionals of $797 million on turnover of more than $1.9 billion. The two companies said this morning that trading in the second quarter of the year at Bavaria has been "strong" and that the company expects to show a higher year on year growth rate than it achieved in the first quarter.

The takeover will make SABMiller, led by chief executive Graham Mackay, a strong force in the South America beer brewing market, and will also leave the Santo Domingo family with a 15.1 per cent in the UK-based group, which is already the second largest brewery group in the world.

Mr Mackay said this morning: "We are excited by the enhanced prospects for growth, in a strategically important market, which the combination with Bavaria brings. We are confident that together the business will generate considerable benefits for all stakeholders."

SABMiller said that the Andean region of South America is forecast to deliver compound annual growth in beer volumes of 4 per cent over the next five years, "well in excess" of the industry average of 2 per cent.

Julio Mario Santo Domingo, chairman of Bavaria, said in response to today's deal: "We are particularly proud of the fact that, for the first time, Colombian interests will have such an important role in a company of the size and magnitude of SABMiller and that SABMiller will establish their South American regional headquarters in Bogota."

The combined group should have annual beer volumes of about 175 million hectolitres, pro forma combined annual revenues of about $12.5 billion and pre-tax earnings of roughlyl $3.5 billion.

SABMiller expects to generate cost savings of $120 million by March 2010 and said this morning the takeover should be beneficial to earnings per share in the financial year ending next March.

Shareholders will have to approve the takeover, which has already secured the support of Altria, the largest investor with a 24.99 per cent stake. A circular should be sent to shareholders within the next three or four months.

SABMiller, which is reported to have fought off rival interest from Heineken, received financial advice from Merrill Lynch and other advice from JP Morgan Cazenove.

By lunchtime, shares in SABMiller jumped 64.5p to 950.5p in early morning trade, seeing the value of the company increase by nearly £750 million.

For company data on SABMiller, click here.

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