Post date: 10/05/2014 - 14:38
Mergers and Acquisitions has been the constant . Interesting readA "monster institution," Milwaukee's leading newspaper called it. Two brewing giants were merging to form a "powerful combination" that would instantly become "by far the largest individual brewing concern in the world." The impact of the "big deal" would be felt on every continent
A "monster institution," Milwaukee's leading newspaper called it. Two brewing giants were merging to form a "powerful combination" that would instantly become "by far the largest individual brewing concern in the world." The impact of the "big deal" would be felt on every continent
No, the paper wasn't covering the rumored merger of Anheuser-Busch InBev and SABMiller in 2014, a blockbuster deal by any measure. The Milwaukee Sentinel was reporting Pabst's purchase of Falk, Jung & Borchert in 1892. Adjusted for scale, it was nearly as important. Pabst had taken the national lead for the first time in 1874, and the transaction was guaranteed to widen that lead substantially.
More than 120 years later, as the InBev-SAB rumors continue to swirl and as Pabst itself becomes the property of a Russian company, it's worth pointing out that the news is hardly new. Mergers and acquisitions have been adding bubbles to the global brewing scene practically since the beginning.
Milwaukee is an excellent case in point. As the city became a German stronghold in its first years of settlement, breweries popped up like mushrooms, reaching a total of 26 in 1856. They turned out 75,000 barrels of the German national beverage in that year, 60% of it for the local market.
No sooner had the breweries started to make beer than they began to combine. In the durable tradition of corporate Darwinism, some producers lacked the will or the resources to expand, while the more aggressive members of the brewing fraternity were only too glad to absorb them. Bigger fish ate smaller fish and grew big indeed. By 1879, the number of local companies had dropped to 13 — half the 1856 total — but together they turned out almost eight times more beer, a total of 575,000 barrels in 1880. As the trend toward fewer, larger firms continued, the roster of producers kept dropping to nine in 1885, but their annual output exceeded 1 million barrels.
Pabst's corporate genealogy illustrates the larger trends. Milwaukee's pioneer lager brewer was Herman Reutelshoefer, a Walker's Point entrepreneur who bunged his first barrel in 1841. Charles Melms, another German immigrant, took over Reutelshoefer's business in 1848, the year Wisconsin attained statehood, and quickly became the city's largest brewer. When Melms died in 1869, Pabst (then Best & Co.) bought his Walker's Point operation and assumed a position of leadership — first local and then national — that it maintained for decades.
A parallel set of combinations was under way a mile or two west. Franz Falk, who had learned brewing in his native Bavaria, emigrated to Milwaukee in 1848. After six months as a "general workman" at what would become the Schlitz brewery, he signed on as the brewmaster for Charles Melms. Itching to go into business for himself, Falk opened the Bavaria brewery on the south rim of the Menomonee Valley near 30th St. in 1856, with Frederick Goes as his partner. He eventually bought out Goes, built one of the city's first bottling plants and rose to fourth place among the city's producers. Fifth place belonged to Jung & Borchert, a partnership of two more German families launched in 1874.
Intent on growth, the Falk family proposed a merger to Jung & Borchert, and they found receptive listeners. The two firms formed a "co-partnership" in 1888 and developed enough capacity to challenge Blatz for third place. (Pabst and Schlitz still held the top spots.)
Falk, Jung & Borchert's dreams of empire went up in smoke just nine months after the merger. A fire described by the Milwaukee Sentinel as "the largest, the fiercest, and the most destructive that has ever visited Milwaukee" leveled the newly expanded bluff-side brewery. The entire inventory of glass bottles melted into a solid mass, and a stream of fresh beer ran ankle-deep into the Menomonee River.
The partners rebuilt at once, doubling their capacity to 400,000 barrels a year, but a second fire in 1892 took the wind out of their sails. When Frederick Pabst offered them $500,000 in stock for their business just weeks after the blaze, Falk, Jung & Borchert agreed to sell. The acquisition pushed Pabst's sales past the million-barrel mark in 1893 — 50% more than Anheuser-Busch, Pabst's nearest national rival, and as much beer as the entire city of Milwaukee had produced just eight years earlier.
The Milwaukee Sentinel pronounced the sale "one of the most important business transactions consummated in Milwaukee in many years" and predicted that Frederick Pabst, "the large-minded, broad gauged president of the company," would tower head and shoulders above his competition for years to come.
In fact, Pabst's million-barrel output was a high-water mark the company would reach just once more before Prohibition went into effect in 1919. The company continued to make money, but rising costs, more selective marketing and the rise of the temperance movement all put a damper on Pabst's growth. Anheuser-Busch, the maker of Budweiser, assumed the national lead in 1901, and Schlitz moved into second place.
After a prolonged timeout for Prohibition, that national dry spell that lasted until 1933, America's brewers resumed their jockeying for position. Mergers and acquisitions were fairly constant, and they accelerated as the 20th century progressed. Pabst merged with Premier Malt Products in 1932 and passed out of exclusive family control. Philip Morris bought Miller in 1969, and Schlitz became part of Stroh's in 1982. The Schlitz brand languished, but Miller, riding the success of Lite beer, became America's second-largest brewer, trailing only Anheuser-Busch.
Except for legacy production facilities, Milwaukee brewing ceased to be a local enterprise in any meaningful way. The next step was global. In 2002, South African Breweries purchased Miller from Philip Morris, and in 2008, InBev bought Anheuser-Busch. America's two leading brewers were now headquartered in London and Belgium, and their corporate parents may currently be on their way to the altar.
In a long look back at the nation's brewing history, consolidation is perhaps the single greatest constant. Mergers began on the neighborhood level when the industry was young and advanced by degrees to the national and then the international stages. What has changed, of course, is the scale of the deals. Pabst bought Falk, Jung & Borchert for $500,000 in stock in 1892. The ante soared to $5.6 billion when SAB bought Miller 110 years later, and the projected value of the Anheuser-Busch InBev/SABMiller deal is $122 billion. Where will it end? When we're all drinking beer out of vats the size of Lake Winnebago.
There is, fortunately, a countercurrent to the high-stakes poker game playing out in foreign capitals. Even as the brewing industry becomes more global, it has become more local. Small Milwaukee brewers with big ideas — Lakefront, Sprecher and Milwaukee Brewing among them — have been aiming at a highest common denominator rather than trying to match the one-taste-fits-all premium beers.
The same creative impulse motivated pioneers such as Charles Melms, Franz Falk and Frederick Pabst. As Big Beer gets even bigger, Small Beer is taking Milwaukee back to its roots.