Dethroning the King (27 page)

The group reconvened for two days less than a month later, on May 21 and 22, in China. InBev's directors visited a few of its foreign operations each year to stay abreast of the business, and this qualified as one of those visits. They were a long way from home, so a range of key players and advisors dialed in by phone rather than showing up in person.

The company's bankers at Lazard presented the proposed merger pitch to the board yet again, and said that progress had been made on the money front. They hadn't cobbled together an entire financing package yet, but more banks were showing an interest.

The board was still uneasy. They had spent a great deal of time evaluating the holes in their case—anything Anheuser-Busch could use against them—and had worked hard to close them one by one. They didn't think, for example, that the merger would be viewed as anticompetitive by regulators in the United States or Europe. Yet they needed more than loose promises from a handful of banks to make the financing aspect of their bid bulletproof.

“Since there wasn't an antitrust issue, financing was the only thing we thought they could exploit,” said one person close to InBev. And InBev just wasn't there yet with its banks. So again, the board decided to sit tight and wait.

That Friday, Frank Aquila, one of InBev's go-to outside lawyers, was sitting in his office on a conference call when an e-mail popped up on his computer screen that instructed him to dial in on another call immediately. He ignored it. Another urgent message popped up, and seconds later, his cell phone rang.

“Dial in right away,” Antonio Weiss called out from the other end of the line.

“Well, I'm on a call, and I've got another in half an hour,” Aquila said.

“Get the hell off your conference call,” Weiss replied more deliberately. “Dial in right away. There's been a leak.”

“Oh, people talk about this all the time,” Aquila said. He wasn't particularly eager to excuse himself from the business he was attending to over yet another market rumor.

“No, there has been a credible leak,” Weiss said, hanging on the last two words for emphasis.

A story that had just been posted on the
Financial Times
's Alphaville web site was drawing a huge amount of attention, and for good reason. It claimed InBev was working on a $46 billion takeover bid for Anheuser-Busch, and said InBev might appeal straight to Anheuser's shareholders if August IV wasn't interested in a friendly merger. The story pegged the price at $65 per share, revealed the code names that had been assigned to the companies, and ticked off a list of attributes they would have if they were combined—all information that came straight from the materials InBev's bankers had presented in Brussels a month earlier. It even referred to an informal entreaty InBev had made toward Anheuser-Busch the prior October—the meeting between August IV and Lemann—and named J.P. Morgan and Santander as the banks that would help InBev pay for the effort.

What had transpired seemed immediately clear. Someone had taken matters into his or her own hands and leaked the information, either as a “trial balloon” meant to gauge the market's view on the deal or as an effort to jump-start the two sides. With InBev's plans now blown out into the open, its board—after months of stalling—would finally have to decide whether to pull the trigger. And Anheuser-Busch might be forced to consider an offer.

InBev altered its calculus the moment the news hit. Brito and the board had still been hoping to convince August IV to sit down for talks, but the leak made a discreet approach impossible. The board needed to make a decision fast. “There was nothing we could confirm; there was nothing other than a hypothetical,” said one InBev advisor who explained the reaction in the company's camp. “We were just concerned about being so far on our back foot, worried that A-B would have now the opportunity to really start marshaling resources.”

To complicate matters, Brito and many of InBev's directors and top executives were either stuck on long flights back to Europe or still spread around Asia following their board meeting. Some members of the group were shocked to realize that their unwillingness to commit in China might have sparked the leak. They had no choice now but to address the matter.

The board first had to decide whether to call the whole thing off. They could deny they had ever been interested in Anheuser-Busch, close the books on the idea, and maybe reconsider it at some point in the future. Their loans weren't in place, and with the markets in such a fragile state, there was no guarantee they'd get the money. No one wanted to blow their chance at such a coveted prize over market conditions that were beyond their control.

As long as InBev wasn't willing to play dumb and scrap everything—if it felt this was its best chance to affix the Anheuser-Busch jewel atop its crown—it was time to kick things into high gear. Media outlets and investors were already clogging the phone lines in InBev's communications office, and the company was saying it had no comment on the report. So were J.P. Morgan and Santander. To many market watchers, though, a “no comment” is an admission of guilt. If InBev really wasn't interested, it would simply say so right off the bat and extinguish the rumors.

At first blush, the market seemed to like the idea of a merger. It was a concept many Anheuser shareholders had already considered, given the consistent churn of the takeover rumor mill. Shares of Anheuser-Busch were up nearly 7 percent on the day, and while InBev's shares were down slightly, it had most of its own stakeholders under control. Rather than being owned by a bunch of day traders, the vast majority of InBev's shares were held by entrenched Belgian and Brazilian families and trusts that employed long-term perspectives and had representatives on the company's board.

It was something else, however, not the market's reaction, that largely guided the board's decision. InBev's phone started ringing on Friday afternoon with calls from banks all around the world. Merger activity was plunging because of the rough economy, and there weren't many opportunities to do deals or places to park money safely. Getting involved in what might be the biggest merger battle of the year was an imperative. “The issue about financing changed a bit as banks started calling up saying, ‘Don't forget us, don't forget us. We've got cash,' ” said one person close to the matter.

So InBev, which had worried one day prior that it might not be able to rouse enough lending power, found itself fielding calls from bankers who were offering to cram over the weekend to make speedy commitments. Their eagerness gave InBev the sense that finding roughly $50 billion in financing was possible. And it offered a window into which banks were advising Anheuser-Busch. According to sources, neither Goldman Sachs nor Citigroup phoned in to offer their services.

Over the course of that weekend, with many board members still scattered across Asia and its advisors in New York and Europe scrambling to adjust, InBev decided not to junk its plans. The board decided to use the rumors as a catalyst to put financing together and strike while the iron was hot—and before the markets fell apart further. They could afford to stay publicly silent for a week or two while they worked feverishly behind the scenes to scrounge up loans, Brito and his advisors felt.

“The view was that we were far enough along, and the response from the marketplace seemed to be very positive,” said a person close to the company.

As an advisor to Anheuser-Busch put it, “They played their own game of chicken with their lenders. They were out in front of themselves on all of this, in part, I think, convincing their lenders that ‘Look, it's going to happen, and it's going to happen without you. So you might as well be part of it.”

On May 23, the same Friday on which InBev's advisors were yanked away from their desks because of the leak, August IV and Anheuser Chief Financial Officer Randy Baker started fielding some urgent calls themselves. Everyone seemed to have the same point of view: The Brazilians were on their way. It was only a matter of time.

Citigroup's Kalvaria called The Fourth from a Manhattan street corner to talk strategy. “These guys will come, and you've just got to get yourselves ready,” Kalvaria instructed. “But don't precipitate anything.”

Baker, meanwhile, suddenly became hugely popular on Wall Street as bankers at firms large and small started crawling out of the woodwork with offers to help defend the company. He hadn't seen the reports when they first came out. The first he heard of the rumors had been over the holiday weekend, when Larry Rand from the Kekst public relations firm pulled them up on his BlackBerry and called Baker from his backyard.

“We hear these rumors all the time,” Baker said at first when Rand directed him toward the latest news. He had deflected so many takeover rumors that they were all starting to blur together, and plenty of them had involved InBev. His first instinct was that this one was no different.

“This one appears to be a little bit more substantial,” Rand replied, scrolling through the text of the reports with his thumb. “They have code names—and a financing plan. It looks like a banker's coding on this. My gut tells me that this has got more validity than the others.”

“Well, we're not going to comment,” Baker responded as the news sank in. What could they say, anyway? They hadn't heard a thing from InBev. Before Baker and Rand hung up, their relaxing Memorial Day weekend plans now ruined, they agreed to collude with Anheuser's internal PR team and the company's lawyers at Skadden to prepare responses in case InBev came forward with an offer.

The worst part of the situation for August IV that weekend was the idea that he was supposed to sit around and wait for InBev to make the first move. He and some of InBev's top brass went back a long way. What was the point of building business relationships if they couldn't be called upon in a case like this? He wanted to know whether the reports were accurate, and felt he had the right to ask. So not long after the stories hit the papers, he drafted a brief but pointed e-mail to the InBev board member he knew best.

“He sent an e-mail to Jorge Paulo Lemann and basically said, ‘These rumors are very disruptive. We should talk so we can put this all to rest,'” said one person close to InBev.

Given the seriousness of the matter, The Fourth might have expected to hear from his Brazilian colleague quickly. Lemann, though, who was still in Asia, employed a bit of coy brinksmanship. Rather than answering The Fourth right away, he instigated a subtle game of cat and mouse.

“Lemann did not answer for a couple of days, and then answered something like, ‘I was in the Gobi Desert and out of touch. Just got your e-mail. I'm just getting on a plane back. It probably makes sense that we should meet,' ” said one person close to InBev. “By the way, he was not as out of pocket as he made it seem.” He was, however, on the other side of the world, so InBev's team knew he couldn't meet with The Fourth for a few days at best. Why not string him along a bit?

“Since we couldn't have the meeting for a while anyway, we thought, “Let's let things play out; let's see where things are and play the old I'm-running-around-the-Gobi-desert trick for a bit,' ” joked one person close to the company.

Once Lemann and The Fourth finally connected, they agreed to meet in Tampa, Florida, on June 2. At the first session it held in the wake of the rumor reports, Anheuser's board had debated whether to reach out to InBev to ask for clarity. They had agreed it would make sense. “We said, ‘Listen, let's find out what they want to do here, what they're talking about,” said director James Forese. “We did it just because it makes good business sense to find out what's going on. Usually, you want to find out what your enemies are doing.”

Plenty of people on Anheuser's side had reservations about sending The Fourth down to Tampa without backup. Lemann and his business partner Marcel Telles, who planned to attend as well, were sophisticated businessmen and strategists, and there was a huge imbalance of information between the two sides. The Brazilians knew exactly what InBev was up to, but August IV had nothing to offer them.

Some members of Anheuser's team weren't comfortable with the idea of meeting with InBev, period. It didn't matter who represented their side. They felt the leak had been deliberate—authorized, at least partially, by InBev's top decision makers. There were lots of reasons why someone at InBev, or someone working on the company's behalf, might have wanted the information to get out. It had already prompted merger arbitrageurs, who bet on merger deals and are often more anxious to see one transpire, to buy Anheuser's stock. Now, it was convincing August IV that he should meet with two of InBev's most powerful directors, even though they had the upper hand. It felt like Anheuser was playing straight into InBev's trap. The Fourth was CEO of the company, and the meeting had been arranged with the understanding that he would be Anheuser's representative. There wasn't enough negative sentiment to change that now.