The imminent sale of Scottish & Newcastle's pub division will create a leaner, more focused business but it will also mark the end of an historic era when brewers could dictate the drinking habits of a nation. David Robertson reports.

S&N announced last year that it was considering options for the 1450 pubs it owns in the UK and few doubted that they would all be jettisoned. An auction process has now whittled the potential buyers to just three and a decision is expected anytime between this week and the end of October.

The current favourite is rumoured to be the Spirit Group, which is backed by a US consortium of venture capitalists including Texas Pacific and Blackstone. Spirit is thought to be offering in the region of £2.6 billion, someway ahead of analyst forecasts of £2.4 billion. Also in the race is the Laurel Pub Company, which has Morgan Grenfell Private Equity as its lead investor, and, finally, another private equity consortium that includes CVC Capital Partners and Cinven.

S&N says it wants to sell the pub business so it can concentrate on developing its beer brands, particularly Kronenbourg, Foster's and Baltika. The money it generates from the sale is likely to be invested in expanding market share for these beers, particularly Baltika which S&N believes will be able to limit Heineken's dominance in Europe.  Baltika currently sells 9m hectolitres a year in Europe compared with Heineken's 13m, but Baltika, which is a joint venture with Carlsberg, is strong in the growing Eastern European markets.

S&N's decision to sell its pubs, however, marks the end of an era in the UK brewing industry. For decades UK brewers guaranteed their distribution, and kept foreign rivals out, by owning huge pub estates. As the Great British drinker spent most of his time in the pub this turned into a cosy, if predictable arrangement.

Then, in 1989, Margaret Thatcher's government announced that it would legislate to limit the brewers' dominance and their vice-like grip on the retail market began to disintegrate. S&N is the final chapter in the shake-up.

Since 1989 Allied Breweries has become the wine and spirits group Allied Domecq, selling its beer brands to Carlsberg and its pubs to Bass and Punch Taverns. Bass, in turn, quit brewing (selling to Interbrew) and then quit pubs by breaking itself into two parts: InterContinental Hotels and Mitchells & Butlers pubs.

GrandMet sold its beers, merged with Guinness and became the spirits group Diageo ditching its pubs along the way and Whitbread also sold its beers (to Interbrew) and its pubs to the Laurel Pub Company.

The main beneficiaries of these disposals were the private equity consortiums led by men like Nomura's Guy Hands (now at Terra Firma Capital Partners) and Hugh Osmond. In an era of low interest rates and stellar stockmarkets the venture capitalists (VCs) could borrow heavily to buy cash-generative pubs that would pay off the debts while the VCs lined up their new acquisitions for floatation.

The industry has calmed down significantly since the heady days of the late 1990s but, as S&N shows, there is still a great deal of interest from the money men. But how long will this last? The companies that dominate the retail sector now are becoming as big as the estates once owned by the brewers and the opportunities for turning a quick buck in the current business climate are not great.

"Size is important in this business," says Nigel Popham, drinks analyst with Tether & Greenwood. "The VCs will just be happy to get rid of them to UK investors now they have reached a certain size. They [the VCs] will all be out in five years, if not well before then."

There are currently three major players in the UK pub market: Mitchells & Butler, which has about 2100 managed pubs; Enterprise Inns with over 4000 mostly tenanted pubs; and Punch Taverns with 4500 leased and tenanted pubs. All three are listed and all three are proving popular with investors, particularly Enterprise which has seen its share price rise from 550p this time last year to 913p. It has a market capitalisation of £1.45 billion, compared with Mitchells & Butlers (the most valuable of the pub operators) at £1.8 billion.

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There are a number of smaller operators with less than 1000 pubs (like Laurel and Spirit) and the addition of S&N's estate will elevate them into the top echelon. But more consolidation is likely with M&B, Enterprise and Punch all developing lines of capital to exploit merger and acquisition opportunities. It is likely that there will, in the future, be only two or three large estates with over 5000 outlets each and a number of small specialists operating maybe a few hundred outlets.

However, the influence of the great pub sell-off has not just been felt in offices in the City of London. In the past a brewer's pub estates was seen as a means of guaranteeing sales to the consumer and as a result innovation, marketing and profit maximisation were of secondary importance. Now that dedicated management teams control the pubs, consumers have seen a radical overhaul in quality of service and in the serving environment.

"Our pubs are bright and airy, they serve good food and a wide selection of drinks," says Jeremy Probert, head of corporate affairs at Mitchells & Butlers. "We are seeing a constant improvement in our pubs."

But before the UK industry gets too sentimental about the final divorce between brewers and pubs its is worth remembering that all businesses operate in cycles. It is currently the vogue to concentrate on horizontal integration - growth through the absorption of rivals.

It is not impossible that once companies realise that acquisitions have become too expensive that they will seek other ways to improve distribution and start vertically integrating - getting closer to the consumer. Lion Nathan, the Australian maker of Tooheys and Castlemaine XXXX, has already done it to win market share from its rival Fosters. Will S&N one day regret its decision to sell?