Dethroning the King (43 page)

Fernández arrived with a single lawyer in tow, and after the men greeted each other and sat down, it was Pedro Soares who started talking. The Fourth had pushed for an in-person meeting with Fernández to relay the bad news, and the two men had a relatively strong relationship. When the time came, though, he had Soares deliver the blow to his Mexican colleague rather than handling the matter chief-to-chief.

When The Fourth debriefed Anheuser's directors at their board meeting the next day—the day on which the board decided to reject InBev's $65 per share offer—he even made a deliberate and somewhat bewildering point to tell everyone that Pedro had done a great job in relaying the message to Fernández. He was kind to praise Soares in such illustrious company, but the whole thing seemed odd. As one person close to Anheuser phrased it, it was as if he had set up a meeting with a fellow CEO to discuss something critical and then sent his secretary in to explain the scenario.

As Soares laid everything out to Fernández that day in Texas and watched Fernández's eyes grow dark with anger, The Fourth looked ashamed. Ashamed that he had offered to subordinate himself to a rival, and ashamed that he now stood there in front of Fernández, a man he had come to know and respect, to retract the offer. He had grown so constrained by his father and the board of directors that it seemed like he wasn't even at liberty to quit.

The news completely blindsided Fernández, who had assumed Anheuser-Busch wanted him to pack up and fly to Texas for a productive deal-related meeting, not to slap him with a demotion.

“This is not in the spirit of the deal we have been discussing,” he retorted, frustrated that he was going to have to go back to Modelo's controlling families to relay the news. One of the main reasons they had agreed to negotiate a deal was because Carlos was going to be in charge.

“If someone is going to run this company, it needs to be someone who has a good track record,” Fernández said, turning toward The Fourth. It was crystal clear, Fernández felt, that he had delivered better as Modelo's chief than August IV had as CEO of Anheuser-Busch.

Soares and The Fourth did their best to diffuse Carlos's anger during the short amount of time they spent with him that day, but they weren't particularly successful. “Carlos had to fly to Texas in his private jet, land, do all this kind of crap . . . it was incredibly insulting,” said one person close to Modelo. “Pissed was not the word, if I can remember.”

“I don't think Carlos would have bothered flying to Texas to be told it wasn't going to happen,” said another. “I think he went under the pretense of ‘We've got stuff to talk about, my family to your family, big deal, only principals, etcetera. And that was when this message was delivered that ‘You're not going to be CEO, but maybe we can figure something else out—head of the Americas or something.' ”

Fernández was livid on the flight home, and spent a good amount of time talking with his lawyer about whether Anheuser-Busch's decision would be a deal breaker for Modelo's family owners. It had been less than two weeks since the start of their talks, and the Americans were already retracting one of the deal's key components. What was next?

Sandy Warner quickly called Fernández to apologize, and he tried to explain the board's rationale. The cost of the transaction was already so high, Warner said, that having Carlos be CEO of the merged company sent the wrong message to Anheuser-Busch shareholders. They'd be giving up too much. However, he laid out what he hoped would be a sufficient consolation prize: Within less than a year, Warner said, he was certain that Carlos would be appointed CEO. It just couldn't happen right away.

Warner acknowledged that he spent a good deal of time talking to Fernández about the role he could play at the merged company. “I had discussions with Carlos about how capable I thought he was, and said that working with August IV, the Anheuser team and the Modelo team, he had a real future in this company,” he said. “If he still wanted to work—and that wasn't a given—but if he still wanted to work, there was a lot of work to do, and he and August would make a great team. He's a young guy, and a lot of things can happen.”

Tim Ingrassia then called Morgan Stanley's Kindler to try to douse the fire further. “We can't be viewed as paying you a premium and having you take us over,” Ingrassia explained. “That just won't work.” Ingrassia then voiced the same pledge Warner had made to Fernández.

“Look, nothing is committed,” Ingrassia said. “But I would be shocked if a year from now, Carlos is not the CEO of this company. We just can't commit to him.”

“What credibility do you guys have?” Kindler fired back, unimpressed by the olive branch. “You've got to be kidding me!”

Carlos reflected on the uncomfortable entreaties The Third had made to him in St. Louis—his furtive admissions that perhaps Carlos was a better CEO for Anheuser-Busch than his own son. He was now starting to doubt The Third's true intentions, given how clumsily he and the rest of Anheuser's board had just backtracked.

Somewhat counterintuitively, however, the Anheuser board's decision suggested to Kindler for the first time that Anheuser was seriously considering the transaction, not just using it as leverage against InBev. The Mexicans took a small bit of solace in knowing that Anheuser's board was actually weighing the terms of a deal and sorting through governance issues, not just treating the notion of buying their company as a joke.

Carlos and María were angry and frustrated that Anheuser-Busch had retraced its steps, but after decades of bad blood between the two companies, they weren't surprised. “Modelo was not looking to be sold,” said one person close to the company. “All of these family members are independently wealthy. It's like ‘You came to us, we didn't go to you. We're very happy down here; we have a great business down here. And now, you basically renege.'” Loose promises that Fernández might take over in a year or two weren't enough to substitute for Modelo's loss of certainty up front. It was going to be much harder now to strike up a deal that would meet Don Antonino's approval.

It quickly became clear that without a guarantee that Carlos would be in charge from Day One, there was no way Modelo's controlling families would accept so much stock as payment for the deal. They didn't want their fates and their fortunes tied to Anheuser's board and August IV. So they decided to flip the terms of the deal and demand a mostly-cash transaction. A cash takeover would be tougher to finance, but if Anheuser wanted it badly enough, it was possible. And it was the only option that gave Modelo's controlling families enough certainty that they'd be paid appropriately for their stake. Their ties to Anheuser-Busch would be limited once they got their payout, and Carlos, who had reached the end of his rope with the gang from St. Louis, could separate from the company and go his own way.

“We came back, after much debate because our guys were so pissed off, and we said, ‘You know, we'll still do the deal,'” said a person close to Modelo. “But we're not going to take anywhere near the amount of stock we were going to take in the first deal. We don't trust your management team. We were happy to take mostly stock if Carlos was running it. We're not taking a bunch of stock if The Fourth is running it.” Modelo's game of hardball was morphing into yet another grudge match between the two rivals.

When Modelo set its new proposal in front of Anheuser-Busch a few days later, it discovered that while Anheuser's board didn't want Fernández to be CEO, they also weren't keen on the idea that he might pack up a briefcase full of cash and head off into the sunset once the deal went through.

“There were a lot of negotiations about what Carlos's role would be,” said a person close to Modelo. “We went back to them and said, ‘We'll do this for mostly cash, we'll take a little bit of stock, and Carlos is gone.' And that totally freaked them out.”

“No, you don't understand,” Ingrassia told Kindler. “Look, the board will never approve this unless they know that Carlos is on board.”

After more rounds of back and forth, the companies finally agreed to push forward with a mostly cash deal through which Carlos would become the merged company's international head. Don Antonino and some of the other families' members weren't as eager about the deal in its new form, but the elements they valued the most were still intact.

“Nothing was ever going to happen if we didn't have the structure where Modelo would stay as a Mexican company, in Mexico City, called Modelo,” said a person involved in the talks. “That was fixed in stone.”

Still, Modelo was wary enough about Anheuser-Busch's capabilities and motives to shift its backup talks with InBev into high gear. It had become clear that whichever two companies struck up an alliance first were going to leave the third out in the rain to get soaked. It was still possible that a deal between Anheuser and Modelo would be scrapped and InBev would win the war. Don Antonino's support wasn't 100 percent guaranteed—nor, for that matter, was an endorsement from Anheuser-Busch's own board. Modelo wanted to have agreements in place ahead of time that gave it free rein over how it spent its money and distributed its beers worldwide.

So Modelo decided to negotiate hard behind the scenes with InBev as well. The Modelo team sat down several times in late June and early July with key InBev advisors to press their most important points. “At the same time we're talking to Anheuser-Busch, we of course are talking to InBev, because we had to hedge our bets,” said one person close to Modelo. “We had to use one against the other for negotiating leverage.”

“Proof positive that we were virtually sure we were a ‘stalking horse' is that we were playing both sides,” said one person close to Modelo. “We were having as many meetings with InBev as we were with Anheuser-Busch.”

In exchange for greater freedom, Modelo was offering to set up a more consistent formula for paying out its dividend, which would provide more certainty for InBev than Modelo currently afforded Anheuser-Busch. Modelo knew that a steady stream of dividends would prove useful to InBev as it labored to pay off its debt following an acquisition of Anheuser-Busch's size.

InBev's point of view, according to one advisor, was that “Modelo had negotiated a pretty bad deal for themselves in the original transaction, and there was hope that this could be used to say, ‘You can have a better deal in some way,' and sort of pit them against Anheuser and put them in favor of InBev.” Modelo and InBev started working to draft agreements to this effect in early July, but the two companies reached an impasse. Modelo wanted to make sure that InBev, like Anheuser, would have no ability to take control of the company, and it also wanted the right to sell itself—both its own stake and the stake that would be owned by InBev—to a third party if it so chose.

Modelo's controlling families weren't pushing hard to sell, but they wanted the chance to change their minds a few years down the road, and they believed SABMiller was an interested buyer. One person close to Modelo said SAB's advisors were “all over” Modelo in late June and July trying to gauge the prospects of a deal, though a person on SABMiller's side contended that it wasn't considering Modelo seriously at the time.

InBev, however, wasn't willing to enter into a deal that might let Modelo sell its stake to SABMiller. InBev professed to the Mexicans that it would love to buy their entire company, but simply couldn't do so while it was also trying to acquire Anheuser-Busch. The sheer size of those two companies combined was too much for InBev to digest all at once. That was the reason Anheuser-Busch was considering it as a defense tactic.

“Their view all along,” said a Modelo source, “was, ‘We're happy to let you run independently. You're never going to hear from us. We want you to be on the board of our parent company. All we really want is two things—first, that you give us the cash; and second, that you don't sell to anyone else.”