Brewers SABMiller and Molson Coors Brewing have agreed to combine their U.S. operations to create a venture with annual sales of $6.6 billion that will be a strong number-two player to Anheuser-Busch.

The venture, MillerCoors, will generate around $500 million of annual cost savings by year three after completion and is subject to obtaining clearance from U.S. competition authorities, the two groups said in a statement on Tuesday.

We expect this approval to be forthcoming ... The combination will create a strong number-two player in the U.S. beer market with 30 percent market share, said analyst Matthew Webb at Cazenove.

The deal brings together the second-largest U.S. brewer with beer brands such as Miller Lite and Miller Genuine Draft and the third-largest, Molson Coors, which brews Coors Light, Molson Canadian and Molson Dry beers.

The companies said final agreement for the deal is expected by the end of 2007, while analysts added that regulatory approval is expected about six to nine months after that date.

SABMiller shares were up 2.6 percent at 15.04 pounds by 1225


Molson Coors Vice Chairman Pete Coors will become chairman of MillerCoors while SABMiller Chief Executive Graham Mackay will be vice chairman. Molson Coors CEO Leo Kiely will be chief executive and Miller Chief Executive Tom Long will become president and chief commercial officer of MillerCoors.

Analysts see a high likelihood of the deal going through as the Molson and Coors families, which control Molson Coors, support the deal, and a precedent was set from a regulatory standpoint by the creation of Reynolds American.

Reynolds American brought together the second- and third-largest U.S. cigarette companies in 2004 to compete against Marlboro-maker Altria.

Each brewer will have a 50 percent voting interest in the joint venture, with SABMiller having a 58 percent economic interest and Molson Coors 42 percent. The joint venture will have net annual revenues of about $6.6 billion.

Both companies have struggled against U.S. market leader, Budweiser -brewer Anheuser-Busch, which has around a 50 percent share of the national beer market and is a major force in beer pricing in the U.S. market as a result.

SABMiller bought Miller in 2002 but has struggled to make headway in the United States, and its market share has slipped below 20 percent. Canada's Molson combined with Coors in 2005 but has also struggled to gain market share in the United States.