ISLE of Skye Brewing Company and Isle of Arran Brewery are merging to expand capacity and move into new markets.

The deal is likely to be formalised early next year and will see both companies coming under a new corporate entity which has the working name of Arran Brewery plc.

Angus MacRuary, co-founder of Skye, is swapping shares in his business for stock in the new venture and will take a place on its board.

Gerald Michaluk, owner of Arran Brewery, is involved in a multimillion-pound fundraising initiative to upgrade the capacity at the brewery from 500,000 litres a year to 16 million.

Alongside that he intends to build a new bottling plant on the mainland and then begin to open a chain of pubs.

The first bar is pencilled in to open in Glasgow city centre in the first quarter of next year.

Now Skye is being added to those plans and is also in line for an upgrade to its facilities to allow for a 250% increase in production for beers such as Red Cuillin and Hebridean Beast.

Mr Michaluk, who also runs Marketing Management Ser-vices International (MMSI) in Glasgow and has interests in property and helicopters, said: "This brings turnover [at Arran] up considerably, by about £500,000, to £1.2 million plus economies of scale in purchasing and things like that.

"But it is really about getting the experience of the Skye team. Getting brewers with 18 years of experience is not easy. Angus strengthens our board and our expertise."

Mr MacRuary, 60, had been thinking of retiring but has been persuaded to stay on and play an active part in the plc. His wife Pam, head brewer at Skye, will also be involved.

He said: "This is going to allow me to do things here at Skye Brewery I have always wanted to do but have been unable to. I was looking for someone to come in and bring substantial investment and this will do that."

Along with plans to produce more for domestic consumption the merger will see beers from both businesses going out to export markets. Arran has just sealed its first export deal to Japan and also has its sights on the United States market.

Skye, founded in 1995, has previously widely exported in the European Union but had to pull back due to excise duties.

However, putting up the £20,000 needed for a guarantee bond will be easier under the new larger corporate structure.

Mr MacRuary is keen to get beers from both breweries into Finland and Sweden where Skye has previously been quite successful. Mr Michaluk said the first phase of the fundraising venture, based on a model similar to how BrewDog raised £2m by offering shares to members of the public, is going well and he is talking to several high-net- worth individuals and investment syndicates.

He said: "We are in active negotiations with several groups of fundraisers. In total there is £27m on the table of which we have to land £3.85m. There are lots of groups at this stage saying they are interested but we need to convert that into a cheque."

The business plans to raise up to £10m over the next three years. Mr Michaluk bought Arran Brewery, based at Cladach, near Brodick, out of administration for an un-disclosed sum in June 2008.