Dethroning the King (44 page)

On Tuesday, July 1, Anheuser's board was scheduled to meet for a major update on the Modelo talks. Investors had taken a few days over the weekend to digest the details of Anheuser's cost-slashing plan and to gossip about August IV's mistake on the call, and the company was finally enjoying a little bit of the momentum that comes with leading the news cycle rather than reacting to it. It didn't last long. InBev issued a press release that morning—another disclosure that was uncannily timed to coincide with an Anheuser-Busch board meeting—in which it announced that the financing for its bid was now set in stone.

That didn't provide an ideal backdrop for the meeting, but Anheuser's team still had reason to be positive. Carlos Fernández and his crew had come around to the idea that he wouldn't be CEO, and with Anheuser willing to make more of its payment in cash, the potential for a deal was looking good. August IV and the rest of his team were prepared to crank away over the Fourth of July holiday weekend to get the transaction down on paper as quickly as possible.

All they needed was the board's blessing to continue, and they got it that day. Goldman, Citigroup, and Anheuser's own executives all presented their views on Modelo and outlined how the deal might affect InBev's bid. Goldman was confident that the transaction would preserve Anheuser-Busch's independence. Anheuser's executives were racking up their third straight week of late nights with those same prayers in mind, scrambling to get the deal done before InBev made its next move. They all understood they were treading a fine line. If they wanted to keep Anheuser-Busch independent, they needed to engineer a deal that would drive InBev away without actually making its bid impossible. That sort of defense tactic could get the board sued.

The Third, given his historic distaste for acquisitions, was never going to be an easy sell. He had even shown signs of buyers' remorse over the initial stake he had purchased in Modelo—one of the best things Anheuser-Busch now had going for it. Anheuser's team, however, now believed they were heading into the holiday weekend with a mandate for inking a transaction. They sensed that The Third and the rest of the board, who made plans to meet on Monday, supported their efforts to mold the deal into finished form.

“August III just likes being in control of things, and plenty has already been written and said about his hesitancy with respect to risks in the world and international,” said one person close to the company. “He's a tough guy, and he's quite skilled at killing things. He was, at the margin, always going to be a challenge. But I think we all thought it was achievable, and he was certainly allowing it to move forward. He hadn't killed it yet, I guess I'd say.”

The Fourth and the rest of his team, however, were dangerously close to becoming pawns in a chess game they didn't want to play. To sign a deal with Modelo, they had to negotiate hard with the Mexicans. There was a chance, though, that Anheuser's board was saying one thing and thinking another for strategic reasons—that some directors opposed the deal and merely wanted to use Modelo as a bargaining chip against InBev.

If that was the board's real motivation, the Modelo talks were nothing but a farce, an act Anheuser's team had to keep up in order to pressure InBev. They would have to pretend they were dead-set on a deal and push it toward completion even if the board had no intention of approving it.

“They had to offset Brito's bravado, him saying, ‘I'm not moving beyond here,' ” said one Anheuser-Busch advisor.

“It's a bit of a bluff. But we knew that he wasn't going to call it.”

—Anheuser-Busch advisor

 

 

 

A
ugust IV didn't end up spending that Fourth of July weekend the way he had expected he would just a month or so earlier. His family's name had been emblazoned on millions of cases of beer sold that weekend, the holiday on which Americans drink more beer than on any other occasion. Ahead of the previous year's July Fourth, the Beer Institute—a lobbying organization he chaired—had helpfully pointed out that when Thomas Jefferson and America's other founding fathers weren't distracted by their work on the Declaration of Independence, many of them had been brewers with a “vision to establish beer as an economic force for the nation's future.”

The Fourth's own vision for the future now looked unnervingly hazy. Rather than celebrating America's Independence Day the way the Institute had said he should—with barbecues, fireworks, and a cold beer—he spent it scrambling for ways to protect the independence of his birthright.

To make matters worse, he and the rest of Anheuser's board awoke on the morning of Monday, July 7, to learn that InBev had just lobbed in another grenade as part of its siege. It was pushing ahead with its audacious move to forcefully eject Anheuser's entire board, and had released an alternate slate of nominees it had finalized over the weekend. If elected, those directors would launch a new review of whether to accept the merger bid—and it was likely they'd vote yes. The board of Anheuser-Busch had unwittingly become part of the story.

InBev's advisors were proud of themselves for assembling a cast of nominees they felt would intimidate Anheuser-Busch. Their goal was to lure former captains of iconic American companies, but they considered their ability to secure two candidates, in particular, as a major coup.

The big win from a psychological standpoint was Adolphus Busch IV. His public plea the previous week for Anheuser to negotiate with InBev had stunned Anheuser's team, and InBev had twisted the knife even deeper that morning by placing his name near the top of its list of nominees. Adolphus had offered to help Brito in whatever way he could when he had released his letter to Anheuser's board, and Brito was glad to take him up on it. His willingness to go to bat for the Brazilians was like “manna from heaven,” said one person close to InBev. “We knew Adolphus was around, but no one thought that Adolphus would do this,” said another. For all of InBev's contentions that it wanted to play clean and keep things friendly, it was more than willing to use the Busch family's fractured history against it when the opportunity struck.

“When they put Adolphus up at the top of the page, with all of these other guys who were well known, you start to say, ‘Oh my God, these guys have played the ultimate card putting Adolphus in there, because that is an absolute punch in the gut to Mr. Busch [III],'” said one former Anheuser executive. “No way was he ever going to allow another guy from the family, an estranged family member . . . that was the ultimate low blow.”

Henry “Hank” McKinnell, the former chairman and chief executive of giant drug maker Pfizer, also agreed to join InBev's roster at the request of Lazard's Steve Golub, who had advised Pfizer on its $90 billion deal to buy Warner-Lambert in 2000 and on its $60 billion purchase of Pharmacia in 2003. McKinnell was a well respected leader in the drug industry and just the type of high-flying corporate leader InBev was looking for. He had, however, been abruptly replaced ahead of his scheduled departure from Pfizer amid questions over his performance and an uproar over his pay.

As for the rest of InBev's slate, Ernest Mario had run pharmaceutical giant Glaxo Holdings. John Lilly had been CEO of Pillsbury. Others had been top executives at Nabisco, Guidant, and ArvinMeritor. Some of Anheuser's board members had professional ties to their proposed replacements—Anheuser's Vernon Loucks, for example, served as an advisor to one private equity firm alongside Mario—and investors were now debating whether InBev's slate was a better fit for Anheuser than its own board. The move was aimed at luring Anheuser into merger talks, not at actually ejecting its entire slate of directors. InBev, however, looked prepared to wage that battle if necessary.

Anheuser's board members weren't panicked when they arrived at the airplane hangar that morning—the release of InBev's nominees was a logical next step in the wake of its lawsuit. “It's a normal tactic. No big surprise,” said Jim Forese. The development did spark some debate over how likely they were to keep their jobs, however, and there was no denying that it made that day's already-important meeting seem even more critical.

The board was planning to debate the Modelo option yet again that morning as it decided how to handle the attempted hijacking of its ranks. Things had changed significantly, though, since the previous week. Anheuser-Busch and Modelo had finally come to terms on a deal, after decades of maddening stops and starts.

The teams on both sides of the border were pumped. They had worked feverishly over the extended weekend to cram everything together, from details of the deal itself to the press release and press conferences they would use to announce it to the world. A team of Anheuser executives had holed up with Goldman's bankers in the meeting rooms at Skadden's offices to negotiate with Kindler, Mercado, and the rest of Modelo's team. After a spirited set of talks, they were ready to go. And the deal had the blessing of Modelo's controlling families, who had been rounded up for conference calls several times in recent weeks as terms of the sale kept changing.

The two companies' PR staffers were trying to figure out the best way to announce the deal. Should it be rolled out in Mexico City? That had been the thought at first. Or maybe in two cities on the same day, one in the United States and one in Mexico? The Fourth could start the day with an announcement down in Mexico, the companies decided, and then he and Fernández would fly to New York for round two. All Modelo's side needed was the all-clear from Anheuser's board.

“We had fully negotiated a deal,” said one Anheuser-Busch advisor. “We had a deal that was done.”

The board was planning to tackle a couple of issues that Monday, but its clear priority was deciding whether to pull the trigger on Modelo. The acquisition's terms had already been recut several times as various board members—and often, The Third specifically—had raised concerns about one point or another and asked that they be addressed.

As the directors settled back expectantly in their usual chairs, waiting for the Modelo pitches to begin, Tom Santel stood up to assemble the management team's presentation materials. August IV remained in his seat, and he stayed there as his deputy launched into the opening bars of their pitch in favor of the deal. A few people in the room were surprised to see The Fourth behaving so passively, given how important that day's presentation was to his company's independence. To others, though, his decision to let Santel take the lead was par for the course. “I've seen enough of him, and heard enough, to know that his doing less rather than more was not surprising,” said one company advisor.

August III, like his son, also lived up to his reputation that day. He had walked into the airplane hangar with a strong sense of how the board's meeting would end before it even began.

As Santel finished up his pitch on why the Modelo deal made sense, The Third started rifling through a pile of documents in front of him. Rather than showing up that day with a pen and a blank pad of paper, he had asked several of Anheuser's executives and bankers—most of whom were already scurrying frantically over the weekend to nail down the Modelo deal—to pull double-duty and run separate sets of numbers that he could analyze on his own. By the time the last of Anheuser-Busch's advisors arrived on Sunday evening, The Third had already summoned Santel and M&A head Bob Golden out to his farm for a full briefing session, where he asked them to present their calculations on Modelo. He had run the two men ragged all weekend with demands for information and had requested details from Goldman, Citigroup, and Skadden as well.