Dethroning the King (26 page)

Even after InBev surpassed Anheuser-Busch in size, however, Anheuser retained a key advantage. Its culture and history were soaked to saturation point with family heritage, Prohibition-era tales, pop culture references, and patriotic American spirit, which put InBev's dry, formulaic background to shame. That might be a non-issue in some industries, but brewers need to sell a “story” and a lifestyle, not just a can of liquid. InBev tried to project a rich image and frequently pointed out that its roots in Europe dated back to 1366. Behind closed doors, though, its executives knew their history left people lukewarm. They were self-conscious about it. Their offices in Sao Paolo looked more like those of a hedge fund than a brewer.

Anheuser-Busch was a dream takeover target for the Brazilians in many ways. InBev's growth rate was expected to start slowing, and they needed a new way to boost profits. “InBev was hitting a wall,” one banker said. “Its growth was really challenged. And the beer industry is not exactly an industry with a big wind at its back. InBev clearly needed something to find something to feed that machine.” Anheuser-Busch was the perfect candidate—it was full of waste that was easy to eliminate. From a cultural standpoint, Anheuser was the “anti-InBev,” which also made it appealing. There was enough lore and legend associated with Anheuser-Busch to offset InBev's lack of rich history.

“From their early stages in the beer industry, they looked up to A-B as a great American icon, and would see it essentially as the fulfillment of a career goal to get a hold of what was the prize of the industry,” said one person close to the company.

InBev cranked its machinery into gear once Lemann's meeting with The Fourth made it clear that he wasn't anxious to play ball. The two companies had plenty of connections that could quickly get messy if InBev grew too aggressive, so Brito wanted to avoid stepping into Anheuser's path with his guns ablaze. Instead, he assembled a loose plan that covered what the two companies would look like if they merged, how a deal could augment InBev's growth, and how much it could afford to pay.

By the time Monday, April 28, 2008, rolled around, this loose sketch had morphed into a concept that was ready to be presented to the company's board of directors. They were due to assemble one day prior to the company's annual shareholder gathering, which would be held on Tuesday at a hotel in Brussels, and while the board typically met in Leuven, the plan this time was to assemble at the Brussels offices of law firm Clifford Chance.

InBev's team of bankers and lawyers, who weren't bound to the company's frugal internal travel expense policy, curled up on Sunday night at the Hotel Amigo, an oddly named but luxurious hotel situated next to Brussels' famous Grand Place square, after spending most of the day preparing for the board's session. They wanted to make sure they were as well positioned as possible to answer the group's inevitable raft of questions. Brito, for whom the meeting would be particularly critical, even dropped by on the way back from a child's christening to check in on their progress.

On Monday morning, InBev's all-male board of directors—many of whom had long and appropriately worldly names that seemed to have been pulled from a
Mission: Impossible
script—settled themselves around a conference room table and prepared for the day's session. Their casual dress helped to set them apart from their business-suited bankers, PR handlers, and lawyers. A minor changing of the guard was set to occur following Tuesday's shareholder meeting: InBev had nominated Stéfan Descheemaeker, its Belgian chief strategy officer, to replace Allan Chapin, who had served on the board for 14 years.

InBev's interest in Anheuser-Busch was slated as a key topic of that day's session, and the company's advisors had done extensive work to assemble and distribute “decks” of material for the board that included a bunch of merger-related calculations and projections. InBev and Anheuser-Busch had been assigned code names, per tradition on Wall Street, to protect against the off chance that someone left one of the booklets in a Starbucks or was overheard chatting about it on the train. Anheuser was dubbed “Aluminum,” and InBev “Nest.” While InBev's machinations had progressed to the code name level of formality, however, the board's session that day wasn't served up as a make-or-break moment. InBev felt it had plenty of time at its disposal, and with August IV cool to the idea of a merger, it was especially in no rush. The board was still hoping to get Anheuser-Busch to comply without using force.

“It definitely was a decision point, and the outcome could be ‘go,' it could be ‘no go,' and it could be ‘Let's think about it more, but no decision yet,' ” said one person close to InBev. “Certainly, there were a lot of people there who thought it was the time to go. But there was also an extent to which the real desire from the very beginning was to not have this be hostile.”

The likelihood of a friendly deal right off the bat, however, was low, as InBev's two closest advisors, Paris-based Lazard banker Antonio Weiss and New York-based Sullivan & Cromwell attorney Frank Aquila, told the board. They could hope Anheuser-Busch would change its militantly independent stripes and sit down for merger talks, but they needed to be prepared for a messy fight, given Anheuser's cultural significance in Amer ica. They would have to enter the process with that mentality to be successful.

The group spent part of its session debating which strategies would work better than others from a public relations standpoint. Nina Devlin—a partner at PR firm Brunswick Group who was later dragged into the news when her husband pleaded guilty to insider trading for stealing deal-related tips from her, some of which involved Anheuser-Busch—laid out everything Anheuser's shareholders and employees might care about if InBev launched an attack. Anheuser-Busch, to its loyalists, boiled down to a great deal more than just a pile of cash. It was thick with cultural significance, from the Clydesdale horses that marched in small-town parades to the Budweiser sponsorships that funded countless sports teams. If InBev bid for the company, lots of politicians and blue-collar workers would want to hear right away what its plans were for employees, the community, and the St. Louis brewery. InBev needed to decide which promises to make to Anheuser right up front and which ones to stash in its back pocket as bargaining chips for later, just in case the companies came to a point where they started debating Anheuser's actual price.

“They did not think these concessions would get them very far on price, but they thought it would get them a long way in terms of sentiment,” one person close to InBev said. “They felt they wouldn't even be in a position to be negotiating price if they created a storm around all of these other things.”

Some “sacrifices” were easy to make. Maintaining Anheuser's beer brewing formulas, for example, was critical. InBev didn't want to give loyal Bud drinkers an excuse to switch to something else. And changing InBev's boring name to incorporate “Anheuser-Busch” also made sense: It was a great brand. “The name was no big deal,” said one advisor. “Brito would call it anything.”

The debate over the location of the company's North American headquarters, and how to treat St. Louis in general, was more complicated. The Anheuser-Busch brewery there was expensive to run, and Brito was concerned that because some of the local workers' views were so entrenched, he wouldn't be able to make big changes without pulling the enterprise out of Missouri. If he moved the North American headquarters elsewhere and brought the best people from St. Louis with it, he could avoid being bogged down by so much baggage.

“I think Brito's reaction was like, ‘Couldn't we just have it in New York City or somewhere?' ” said one person close to the company. “To people in St. Louis, you might as well have it in Guam if you're going to put it in New York City.”

Brito ultimately acknowledged that with the city of St. Louis already suffering heavily from the sagging economy, closing Anheuser's facility there would be too bitter a pill to swallow. One of InBev's political weak spots was its cold, ultracompetitive culture, and closing down the St. Louis brewery would only draw more attention to the cultural gulf that separated it from Anheuser-Busch. It could unleash a rain of political brimstone on InBev's head. Brito's team decided to stick with St. Louis, and focused instead on which facets of the business would stay there rather than shifting elsewhere.

Most of these arguments occurred between InBev's executives and their advisors rather than in front of the board. The directors were vocal that Monday in Brussels on certain issues as well, and drilled in on a handful of key questions. How realistic was the threat of a huge political outcry? And what impact could it have on their takeover bid? Could Anheuser-Busch actually block a takeover by using an outpouring of popular support to its advantage? And even if it couldn't, would the angst caused by InBev's takeover attempt affect its ability to sell beer in America? InBev didn't want to pollute its own well. The group had a healthy discussion, but left everything open for further debate.

“At that point, the timetable was looking pretty far out. In our view, it was still a couple of months down the road,” said one advisor to the company. “It was more ‘These are the things you need to think about and weigh.' ”

To even get to the point where success was an option, InBev needed money. It couldn't possibly pay for the deal out of pocket, and the banking markets were getting worse by the day. InBev had loosely lined up a roughly $50 billion financing package with J.P. Morgan and Banco Santander, the Spanish bank, but that was only the tip of the iceberg. Those two banks wanted to distribute their exposure to other banks, especially in the risk-averse lending climate, and that process could take several more weeks at least. Thankfully, J.P. Morgan and Santander were two of the best-positioned banks amidst the rising rate of meltdowns at other institutions. That's why InBev had gone straight to J.P. Morgan's Jamie Dimon and Santander chief Emilio Botín when it began probing around for funds.

How much capacity did the global lending system actually have at the time for something like this, they wondered: $25 billion, maybe $40 billion? It certainly wasn't clear InBev could raise $45 billion or more. They were facing the worst credit environment since the Great Depression. They had to be careful, too—with each new bank they approached in search of funding, the risk increased that news of their plans would leak to the media. Anheuser's share price had already started ticking higher because abnormal options trading was showing increased risk of a takeover—word was seeping out within the banks InBev had consulted. InBev was already playing with fire, and it wasn't likely to have the luxury of taking several more months to cobble together a jumbo financing package.

As the board discussed the sketchy state of its financing that day, the directors' prejudice became clear: Jumping out of the gate with a bid before they had the money would be foolhardy. It could potentially ruin the only shot at Anheuser-Busch they might ever have. If they made an offer with weak financing, all Anheuser would have to do to turn shareholders against InBev would be to cast doubt on its ability to cough up the dough.

The board was scheduled to meet again in late May in China, so the directors decided to sit on things for a few weeks and take them up again on Asian soil. In the meantime, they gave their main investment bank, Lazard, the all-clear to start working more closely with J.P. Morgan to assemble financing for a bid. Perhaps they'd be able to secure enough commitments within the next few weeks.

“I think they expected to be talking more about strategy and getting the deal done, but the financing really almost hijacked it,” said one person who attended the meeting in Brussels. “They were still working on it; there were concerns about it. I think it took up a much larger portion of the time than initially had been expected, which is why they sort of agreed to regroup. They needed to have a better sense of whether the financing would be able to be put in place.”