The brewing sector has seen steady consolidation in recent years and 2008 was certainly no exception. Olly Wehring reviews a year which began with the protracted takeover of S&N by Heineken and Carlsberg and later saw InBev's colossal $52bn acquisition of Anheuser-Busch.

In years to come, many observers will look back on 2008 as a watershed for the global brewing industry. After an already sustained period of consolidation, the trend appeared to reach its zenith this year, with what could safely be termed a 'mega-consolidation'.

While it would be a brave man who claims InBev's purchase of Anheuser-Busch marks a slowing of pace, it would certainly be safe to say that the scale of consolidation has peaked. And to think the year started with a battle between two established global players and a UK-based brewer that had many of us thinking it couldn't get any bigger.
 
When Carlsberg and Heineken confirmed - albeit somewhat reluctantly - in October 2007 that they had been in discussions to acquire Scottish & Newcastle, the year ended with the UK brewer rebuffing the European companies' overtures. S&N had a legal case to make against Carlsberg's actions, the UK company claimed, and was looking to snatch complete control of Baltic Beverages Holding (BBH) - S&N's Eastern European joint venture with Carlsberg - with the help of the courts. Before the end of January, however, S&N accepted Carlsberg and Heineken's offer of GBP8.00 per share - up from the initial offer of GBP7.20 per share - valuing the company at around US$15.2bn.
 
The saga saw S&N's CEO, John Dunsmore, come out smelling of roses. Certainly, the rejection of previous offers, coupled with the aggressive approach towards Carlsberg and Heineken resulted in a far better return for S&N's shareholders. For the two European brewers, Heineken especially, the adventure was just beginning, however. While Carlsberg busied itself with integrating S&N's BBH stake, as well as Brasseries Kronenbourg in France and S&N's 17.5% holding in Chongqing Brewery in China, Heineken had bigger fish to fry.
 
In India, for starters, the Dutch company has spent the bulk of this year in talks with The UB Group, trying to iron out differences between the two. Having taken over S&N's 37.5% stake in UB's United Breweries unit, Heineken has found its Asia Pacific Breweries joint venture with Fraser & Neave in direct competition with UB in India. Talks between the two are ongoing. Also, earlier in the year, Heineken had a nervous few weeks as the Irish authorities investigated the possibility of a brewing duopoly - alongside Diageo - in the country following the purchase. Clearance was finally given for the company's takeover of Beamish & Crawford from S&N in the country, although across the water in the UK, Spain's Mahou-San Miguel took exception to its main domestic rival handling the San Miguel brand in the country. Carlsberg subsequently stepped in to take over, but Heineken will still be glad to see the end of 2008, in the hope that next year will bring calmer waters.
 
Another story that hung over from 2007 also came to an end this year, with SABMiller and Molson Coors receiving the green light for their tie-up in the US in June. The two companies have subsequently merged their operations in the country, and selected Chicago as their head office, over Miller Brewing's main office in Milwaukee and Molson Coors' Golden, Colorado base. The move acts as an indication of an alternative to acquisition when it comes to continuing consolidation in the global brewing market. Heineken and Diageo's actions in South Africa are another example. In March, the two companies extended their alliance with Namibia Breweries in the country, creating a new company to handle the profit-sharing side of the existing venture. The announcement was followed by the beginning of construction of a new brewery for the alliance, in the Sedibeng area of South Africa.
 
Dropping down a division, meanwhile, some medium-sized brewers in the UK, Ireland and Australia have also been looking at opportunities for consolidation. Cobra Beer, the UK/Indian company known for its curry-friendly namesake brand, confirmed late this year that it was on the lookout for a buyer, with Diageo having taken a sniff in the summer.

C&C Group, meanwhile, appointed the aforementioned John Dunsmore as its new CEO in November. The move raised eyebrows, not least due to Dunsmore's poker-faced handling of Carlsberg and Heineken earlier in the year. C&C's Magners cider brand, which accounts for 80% of the Irish company's profits, has continued to struggle in 2008, after the highs of 2005 and 2006. What's not to say Dunsmore has been brought on-board to sort a similar deal for C&C's shareholders as he managed for S&N's?

Foster's Group saw its CEO, Trevor O'Hoy, step down in June, as the Australian beer and wine group revised its fiscal 2008 earnings outlook downwards, owing to growing problems in its wine division. Should Foster's look to sell its wine unit in 2009, as is widely expected, it would leave the brewing operations open for one of the world's larger brewers to make a move.
 
The second half of 2008, however, was dominated by the deal to end all deals when InBev, the third largest brewer by volume in the world, made a move to acquire top-placed Anheuser-Busch for an eye-watering $46.3bn in June.

The US-based brewer responded to the initial offer in much the way that S&N responded to Carlsberg and Heineken, with speculation linking A-B to a merger with Mexico's Grupo Modelo, in which A-B holds a 50% stake. The lack of a white knight to offer A-B an alternative to InBev, coupled with Modelo's apparent resentment at being used as a pawn - Modelo's CEO, Carlos Fernandez quit his post on A-B's board within two weeks of InBev's initial bid - left the US company with little alternative. Within five weeks of InBev's first move, A-B's board recommended an improved offer from the Belgium-based company of an even more startling $52bn.

While the brevity of the battle disappointed many media spectators, the future clash of cultures will certainly prove interesting, with A-B's heavy marketing-spend approach seemingly at odds not only with a global economy that is headed for hell in a handcart, but also jars heavily with InBev's cost-control nature. Next year, Mexico may well be front of mind for many brewers. Whither Modelo? And, wouldn't FEMSA prefer an international sugar daddy to help fight the good fight? How InBev plans to glean savings from its newly-purchased US division will also make for headlines in 2009.

The beer markets in China and Russia will also have their fair share of column inches in 2009, after a year in which both countries saw a worrying trend of levelling off consumption. With the mature western markets offering little joy for international brewers, the favouring of cheaper, domestic beers by consumers in China and Russia, tied in with ongoing concerns over high raw material costs, suggests the tough times of 2008 could merely be prologue.

This article is an extract from December's just-drinks management briefing. Click here for more information on just-drinks' management briefings.

For a more in-depth view of the global beer market, see the just-drinks research section.