Brewers build up a thirst as Pabst sale is signalled

Pabst, the American owner of Blue Ribbon and Colt 45 lager, has paved the way for another round of consolidation in the global brewing industry after in effect putting itself up for sale.

Pabst has instructed the investment bank Merrill Lynch to investigate its options; estimated valuations for the company range from around $350m (£209m) to $500m. However, it is understood a large chunk of that would cover debts of around $150m and pension obligations of a similar amount.

The company is wholly owned by the Kalmanovitz Charitable Foundation. Pabst's president and chief executive, Brian Kovalchuk, said the foundation was required by law to divest itself of the company by mid-2005. He added that a sale of the entire business, rather than individual brands, was his preferred option.

A number of rivals are likely to be interested in the business. In the UK, one possible bidder is drinks giant Diageo, the owner of Guinness as well as Smirnoff vodka and Johnnie Walker whisky. As the world's number one spirits company, Diageo is likely to fall foul of competition authorities should it seek to expand its spirits portfolio, so brewing is a viable alternative.

Other possible bidders include the European giant Heineken and Scottish & Newcastle, which is selling its retail estate to pubs group Spirit for £2.5bn. However, S&N is understood to view the US as an export market only and has recently been concentrating on building up its presence in eastern Europe.

Of the domestic purchasers, Coors is seen as the main contender. Anheuser-Busch, the owner of Budweiser, is already number one by a large margin, while SABMiller is still seeking to fully integrate Miller into the former South African Breweries business. However, Pabst and Miller are already connected: Pabst is known as a "virtual brewery" as it contracts out the actual brewing of its beers to Miller.

Pabst, which was bought by US property magnate Paul Kalmanovitz two years before his death in 1987 and traces its roots back to 1844, has lost market share to its three larger rivals in recent years. However, the Texas-based company said its flagship Blue Ribbon beer was enjoying a resurgence. Other brands in its portfoilio include Lone Star, Schlitz Malt Liquor and Old Milwaukee.

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