Dethroning the King (41 page)

Anheuser's board considered putting a poison pill back in place as a roadblock against InBev, but decided it would be too glaring an effort to concentrate their power.

“I think the board was pretty united that it was important, given the family history and the fact that people thought it was a family company, to have state-of-the-art corporate governance,” said one person close to the board. “People didn't want to do anything that could be viewed as unfriendly to shareholders. It's all about winning the hearts and minds of the shareholders, and you want to seek the high ground.”

They had already lost one critical mind and the money that came with it—Warren Buffett's. While they couldn't be 100 percent certain, Anheuser-Busch's advisors believed he was rapidly unloading his more than 35 million shares of stock at prices right around $60 per share. “Buffett was unloading his stock as fast as could be,” said one of the company's advisors. “We had a pretty good guess pretty early. You tried to work backwards on where trades were coming from, so we had a pretty good guess.” Buffett seemed to have decided it was smarter to lock in the gains he had already made on Anheuser's shares rather than waiting to see if InBev would make a higher offer.

Anheuser's board knew that the details of Buffett's stock sales, which ended up totaling nearly two-thirds of his Anheuser-Busch holdings, wouldn't be made public until he filed papers with the Securities and Exchange Commission at the end of the quarter. That meant that they had until August to get their plans for the future squared away before news of the sales hit the wires. It would be impossible to negotiate with InBev after that point.

“That was not going to be a great backdrop for a price negotiation,” the advisor said. “It was ‘Wait a minute. If Warren Buffett is willing to sell at $60, why would I raise my price from $65 to $70? If the Sage of Omaha is selling at $60, is there any value there?' ”

“Fidelity was selling its stock, too,” the advisor said. “It's just that when Fidelity sells its stock, it's not viewed as a message to the world. When Warren does, people read into it.”

Even though that Thursday had only marked the first significant step in Anheuser-Busch's defense—its rejection of the bid—things were already looking dire. The board had no way of clawing back some of its old protections without angering investors, no one in Washington was coming to bat for the company, and there was no more hope that Buffett would publicly oppose the deal. The board was looking increasingly vulnerable to a coup each day—and this time the threat was coming from outside, not within. Anheuser knew that InBev had a strong chance of winning its lawsuit. “I predict we would have lost that battle,” one advisor said, “so the board would have been up for election.” Still, that didn't mean they were about to concede publicly.

That's exactly what happened the following day, however, when August IV made an enormous tactical blunder on the company's heavily anticipated Friday morning conference call. Randy Baker and The Fourth spent most of that morning's session taking investors through their plans to expand and accelerate Blue Ocean. All of the cuts the strategy committee had unearthed during its meeting at the soccer park were laid bare for Wall Street and the city of St. Louis to digest. Some, like reducing the company's energy usage and its spending on equipment, weren't a big deal, whereas others were tougher to swallow. Anheuser-Busch planned to offer an early retirement program with hopes that 10 to 15 percent of its 8,600 salaried employees would take the bait. If that didn't happen, the company might have to make the job cuts itself. After years of avoiding such tough decisions, Anheuser-Busch simply had no choice.

There were plenty of skeptics on the call that day. It wasn't clear that The Fourth and his team could really follow through with their leaner new strategy. Cutting jobs and eliminating waste had always made people within Anheuser-Busch uncomfortable—it was against their culture. Why should anyone believe things were different now, especially with a quick $65 per share in cash as the alternative?

“Blue Ocean should probably have been implemented sooner, but it meant cutting jobs and trimming costs, and these are all tough things for a company that is so entrenched in its hometown to do,” said one company advisor.

“It was low-hanging fruit,” said another. “It was pretty easy to do, but this team didn't have the history of organizational change, cost-cutting, and restarting growth. They hadn't done it before.”

When the question-and-answer portion of the conference call kicked off, the analysts who had been given permission to talk politely lobbed in a few softball questions about the restructuring. Inevitably, though, the queries soon started to focus more directly on the status of InBev's attempted takeover. The Fourth deferred several times at first to Baker. Then he started answering more of the analysts' questions on his own.

Roughly halfway through the Q&A, one analyst asked about InBev's lawsuit. Was it clear to Anheuser-Busch, he wondered, that its board couldn't be ejected all at once without cause? The answer should have been cut and dry. Anheuser's official stance was that it was confident the directors couldn't be removed all at once, and that it planned to let the court decide. Instead, The Fourth committed a monstrous gaffe. Yes, he told listeners on the call, InBev did have the power to eject the entire board if it could get more than half of Anheuser's shareholders to vote in its favor.

The call came to an end a few minutes later and the operator thanked the participants for their time. Just as everyone was about to hang up, August IV interjected with a plea for another few seconds of airtime.

“Wait, wait, wait. Can I make one last statement, please?” he called out. “Can we correct my statement about director removal and say we will challenge InBev's claim in their lawsuit that they can remove directors without cause? I was wrong on that statement, and that is the correct answer. Thank you.”

The Fourth had tripped like a fool when he should have been more focused than ever, and it hadn't escaped the media. He wanted to take those words back almost as much as he wished he could wipe clean the promise he had made to the company's 600 distributors at their annual conference in April. Anheuser-Busch, he had vowed to a packed room, would never be sold “on my watch.” That wasn't a commitment he was sure he could keep anymore.

It wasn't clear that August IV was the right man to lead Anheuser-Busch, and that huge mistake, made in such a public forum, didn't boost anyone's confidence in his ability to lead under pressure. It was tough to imagine a way that the board could reject InBev outright without making a change at the top.

“The board was in a tough position. If they were going to fight like cats and dogs, they were going to have to say ‘We believe in this management team, and they're going to deliver you this value in time with very low risk,' ” one advisor said. “As a board member, that's what you have to get your head around to say ‘No.' That, or they would have had to bring in new management.”

Yet while there were whispered debates between small groups of insiders over whether The Fourth should be replaced, the subject was never broached by the board of directors.

“That's one of the things you consider in a takeover battle—do you replace him?” one advisor said. “But it never really was a subject of conversation.”

—Anheuser-Busch advisor

 

 

 

A
t 8 A.M. on Wednesday, June 18, three days after InBev fired off its warning letter over Anheuser's dalliance with Modelo, Morgan Stanley's Rob Kindler and several of his colleagues sat down at the downtown Manhattan headquarters of Goldman Sachs, a monolithic, maroon-marbled building at 85 Broad Street, for their first meeting with Goldman's Ingrassia and Gross. By this stage, the Anheuser-Busch board had explicitly instructed Goldman not to involve Citigroup in meetings or phone calls related to Modelo. Ingrassia and Gross felt bad about the slight, since their working relationship with Kalvaria and his team was strong. The board, however, had made up its mind.

“The Bud board and management team had a point of view that there had to be a single voice talking to the other side, and for whatever reason, they wanted that to be Goldman,” said one of the company's advisors. “I don't think it was a lack of confidence in Citi. I don't think it was evil in any way. I think it was that ‘We're just going to have one voice on this. We're going to make it simple on us, and we're going to make it simple on the other side.' ”

By the time they met that morning, the parties had only been negotiating for five days. Before things progressed any further, Modelo's team wanted to make itself clear on a few points. They had no intention of accepting any bid that wasn't richer than InBev's bid for Anheuser-Busch, a stance that Kindler reiterated to Ingrassia and Gross. Modelo's higher-growth beers like Corona and Pacífico sat in a category above Anheuser-Busch's tired, old brands like Budweiser and Michelob, Kindler explained, and Modelo deserved to be paid accordingly.

Modelo, conversely, was happy to take as much stock as Anheuser-Busch could offer as payment for the takeover, because its five controlling families believed that combining the two companies would boost the shares' price over time. There was one critical reason for the families' confidence in the deal, which led Kindler to his third point: Carlos had to be put in charge. With Carlos at the helm rather than the young Busch scion, the Mexicans felt their investment would be safe.

Kindler and his team then headed back down to Mexico City that afternoon to prepare for a meeting with Carlos and Mariasun. They all assembled the next day at Carlos's family office, just as they had eight days earlier. This time around, though, the talks weren't speculative. Modelo's controlling families were now closely monitoring every development, and Carlos was due to present his views on the proposed takeover to Carlos's uncle, Don Antonino, at their office later that day. With a loose offer from Anheuser-Busch on the table, they started hammering out the details.

Carlos and María approached the concept from different angles, but they both favored selling to Anheuser-Busch. María felt the time was right from a financial perspective. The Americans were offering a very rich price—a price they might never see again—and she favored accepting the offer before the pressure on Anheuser-Busch wore off. Carlos, meanwhile, was staring at a chance to run the entire company—to seize operating control of one of America's crown jewels. He wasn't eager to go down in history as the man who traded his family's legendary company to a rival. If he could be CEO of all of Anheuser-Busch Modelo, the controlling families' new investment in the company's stock would be under his tight purview. They would own the biggest stake in what would be a much bigger company, and Carlos would be running the show.