Last Monday the Tanaiste, Ms Harney met Mr Colin Storm, the chief executive of Guinness Worldwide Brewery at her offices in Dublin. What he told her was not very pleasant. Guinness wanted to shut down its entire operation in Dundalk, where it operates two breweries and a packaging plant employing 350 people in total. Further job losses were also planned at the company's three other Irish breweries in the coming months, as part of a plan to cut capacity.

The reason for the cutbacks was falling sales of Guinness in Ireland and worldwide overcapacity in the brewing industry, according to the company. Last April the company embarked on a review of its operations in Ireland and Britain in order to find the necessary savings.

Guinness had originally planned to announce the first results of the review - closing down the Dundalk plants and shifting the packaging operation to Belfast - next week. A hurried announcement had to be made yesterday after rumours of what was coming began to leak out in Dundalk.

The company bowed to pressure from the Government and in the region of 60 jobs are to be saved for the time being at Dundalk Brewing, the former Great Northern Brewery, which makes Harp lager. The packaging company, Dundalk Packaging, which is located in the old Macardle Moore brewery is to be shut completely. The small Macardle brewery on the same site will also go. The Harp and Macardle brands will remain in existence for the time being.

The restructuring at the other breweries including the 240-yearold flagship St James's Gate in Dublin and Smithwicks in Kilkenny will be announced over the coming months. Further job cuts can be expected in the company's 3,000 strong workforce.

The company has embarked on a major reorganisation of its main British brewery at Park Royal in London which brews stout for the UK market. Park Royal is the main threat to the future of St James's Gate as the company's flagship operation and spiritual home. Arthur Guinness, the founder of the brewing dynasty bought St James's Gate in 1759 and by the end of the century had turned it over entirely to making the famous stout. The rationalisation of Guinness's operations in Ireland are only a small part of a massive reorganisation at Diageo, the food and drink giant formed in 1997 when Guinness merged with Grand Metropolitan.

On Thursday the group announced it was in talks on the merger of its Pillsbury food division with the US cereal's group General Mills in a $10.5 billion deal. Pillsbury owns such well known brands as Haagen-Dazs ice cream and Old El Paso Mexican meals. Diageo has been under pressure from its larger institutional investors to get out of the food business and concentrate on spirits, which account for two thirds of its profits.

The disposal of Pillsbury is part of a process aimed at achieving this goal and follows the announcement last month that Diageo will float off its Burger King subsidiary. Attention will now focus on the company's long term plans for Guinness, which is not seen as part of its core spirits business. Mr John McGrath, the group chief executive of Diageo revealed on Tuesday that sales of Guinness on a worldwide basis are expected to increase by 2 per cent this year, but in Ireland they will actually fall by 4 per cent.

The global strength of the Guinness business and its brand are a powerful incentive to Diageo to retain ownership but market analysts point out that it would achieve a better valuation as part of a dedicated brewing company rather than as an appendage to a spirits group.

Anheuser-Busch, the US brewing giant, is the most often touted purchaser for the company.