Dethroning the King (48 page)

As Brito weighed the matter that night, the two people who seemed to have the most articulate and persuasive impact on his decision were Lazard's Antonio Weiss and David Almeida, the internal M&A head for InBev. Both appeared to favor raising the bid. They played up how well Anheuser's business fit within InBev, and said Brito was never going to get any closer to buying Anheuser-Busch than he was at that very moment. Did he want to lose the chance to make the acquisition of his career, to do the type of game-changing deal Lemann and Telles had lusted over since their days at Brahma in Brazil, over just a few extra dollars per share?

True to form, Brito wanted numbers. He wanted to know how the deal would play out financially if InBev's final offer were any one of a range of prices: $68 per share, $70, $72, and beyond. When InBev's team adjourned that night, planning to reconvene early Wednesday morning to prepare for the most important board meeting they had ever had, Brito still hadn't tipped his hand to indicate the price he'd support. It seemed highly unlikely that he would recommend more than $68 or $70 per share. The numbers, as InBev crunched them, simply couldn't justify paying anything higher.

There was magic to the notion of offering $70 per share. It was the biggest number that InBev still believed made sense. It was also the number August III and some other Anheuser-Busch board members had appeared to indicate they would support behind closed doors in St. Louis. Whether InBev received a quiet, back-channel indication that Anheuser's board could be reeled in at $70 per share has been hotly debated on both sides, and many people involved in the deal believe InBev was guided to that number by someone on Anheuser-Busch's side.

Back-channel communications in M&A deals tend to ruffle the feathers of those who are circumvented, and they don't uphold a high standard of transparency. They are certainly permissible, however. Anheuser's board didn't feel confident using August IV as a conduit between itself and InBev, and there weren't any other obvious executives they could enlist without violating the usual orders of engagement. If they wanted to let InBev know that $70 a share would yield a done deal, and didn't want to involve their bankers, the board's independent directors had few choices other than taking matters into their own hands. With all of the connections they had on Wall Street and in corporate America, several of them could easily have ensured that the right message reached InBev.

“If you thought there were outside-the-arena communications, it probably made sense,” said one person close to the deal. “Somebody may have had that contact—to say that if the deal could be done on a friendly basis, that was the way it could get done. I don't see how anybody could say that it is not consistent with one's fiduciary duties to go explore and be informed.”

On Wednesday morning, once InBev's board was debriefed on the call with Anheuser and the meeting with its bankers, debate quickly fired up over whether they should raise their offer. They weren't eager to pay more, but they also sensed that a sufficient bump in their bid might be enough to seal the deal quickly. An extra five dollars per share was manageable from a financial standpoint, but they didn't want to pay a penny more.

“The view was, ‘You know what, we're going to raise to $70, we're prepared to pay $70, but this is it,'” said one person involved in the matter. “We'll do battle at $70, and we feel confident the market will take $70.” It was more than Brito had hoped to pay, but he was tantalizingly close to seizing the brewing industry's most desirable asset.

“I think he swallowed very hard and said, ‘When you're on the carousel, there's only one gold among the brass,' ” said one person involved in the deal. “This is the golden standard. I go for it even if it means I take what I now have and get rid of it to pay my debt to J.P. Morgan.”

Brito had grown tired of negotiating through Goldman Sachs and members of Anheuser's board, and wanted to deliver the new offer straight to August IV himself. Anheuser, though, wasn't willing to budge. They had been burned at that game before, and this time they weren't playing it.

“The board wanted to control this thing themselves, and they were not interested in having The Fourth go out and control it for them,” said one person close to the company. Now that the two companies were entering into a negotiation, InBev's board was going to have to talk to Anheuser's board if it had something to say. “The board was trying, independent of anyone with the last name of Busch, to orchestrate how this was going to go,” this person said. “Sandy and Whitacre wanted, as the board, to make this more about the board deciding it than about any one party deciding it.” So Brito picked up the phone on Wednesday and contacted Warner and August IV—Whitacre wasn't able to make the hastily scheduled call.

“We're highly confident we can get this deal done at $65 a share,” Brito told the pair as he launched into a somewhat antagonistic preamble, suggesting he was willing to push forward in a hostile manner if necessary. “It's a full price, we intended it as a full price, and it's a compelling proposition for Anheuser-Busch's shareholders.”

“But we'd prefer for this deal to be a friendly one,” he continued. “In order to make that happen, we'll tell you that our best and final offer is $70 a share.”

At $70 a share, InBev's new offer now totaled a whopping $52 billion. The response from Warner and The Fourth, though, was disappointingly muted. “They really didn't talk about it,” said one person on InBev's side. “They said, ‘Fine, we'll take it back to the board.' ”

Brito's end of the line went dead, and August IV started to speak, knowing that Warner was still patched into the call. “We can do better than that,” The Fourth fervently professed, referencing the efforts that were underway to slash costs and boost the company's share price. “We've got a great team; we've got a great company. We've got to fight this!”

Warner felt sorry for The Fourth. The young CEO desperately wanted a chance to prove he could save his family's company. “I know how much he wanted to do this, I know how hard he worked for it, and he and his father were struggling,” Warner said. It was too late, though. The clock had run out.

“I don't think the board is on the same page,” Warner carefully replied. “It's a full price, it's low-risk, and it's a terrific payday for our shareholders. It's going to be tough to fight. But let's go into the next meeting with an open mind, we'll hear what you have to say, and then we'll talk about it.”

Warner hung up the phone and then sat there for a moment in silence. “This is going to happen,” he said to himself.

At 4 P.M. New York time on Wednesday, Warner and August IV delivered InBev's $70 per share offer to the board of directors. With so many meetings in such a compressed period of time, the board had opted to discuss and rule on the matter that afternoon by telephone rather than scrambling Anheuser's jets so they could convene yet again at the hangar. They expected their decision to be relatively clear-cut, anyway. They would start talks with InBev if it raised its offer to an acceptable level, and turn back toward Modelo if it didn't.

When they heard InBev's new number, the board—and particularly its inner circle of independent directors—displayed no hint of surprise. It seemed as if they would have been more taken aback if InBev hadn't come through with $70 per share. “It was totally expected,” said one Anheuser advisor. “People knew that that was the number. I think they were totally, totally expecting that. The issue was whether they wanted to go back and fight for more.”

The Modelo option had served its purpose—for Anheuser's board, at least. It helped them make a strong case for the $70 bid its directors favored. “Having Modelo got them to $70,” a company advisor said. “It allowed them to show some leg. A-B played it very well, because they had heard that $68 was the maximum amount Brito wanted to pay. They got him to bite the bullet and pay more.”

With InBev's new bid now in front of them, the board wanted to know whether the Brazilians could be trusted. They didn't want Brito trying to squirm his way out of the purchase six months down the road. After a good amount of back and forth on the topic, the board decided it was comfortable enough to move on to the last issue that remained up for discussion—but it was probably the biggest.

The Brazilians had stressed that this was their best and final offer. But who wouldn't say that in a negotiation? They had only made two offers, and some takeover fights progress through a handful of successively higher bids before the target finally acquiesces. With InBev dangling out there for the world to see, its desires for global domination now laid bare in front of everyone, would it really not consider tossing in another dollar or two to seal the deal? Goldman and Citigroup had agreed prior to that afternoon's call that they should at least advise the board to consider the option. So when a chance to address the matter presented itself, Ingrassia spoke up.

“There is still the option to go back and ask for more,” he said, suggesting in his typical measured fashion that InBev might have a few extra dollars stashed in its pocket. The Brazilians knew their fingers were closing around the prize, he explained, and they weren't likely to walk away over the request. The worst-case scenario was that they'd say no.

Ingrassia's point was well-articulated, and not out of school. Several other people on the call shared the same sentiment. But he got a startling slap in the face as a voice that sounded like Whitacre's gruffly interjected and commanded—using language more appropriate for the deck of a ship—that Ingrassia shut his trap.

“I remember a very, very stern, and not entirely articulate, response to that, which was ‘No way, we're not doing anything else,'” said one person who heard the rebuke. The comment was “both an attack on the idea and a little bit of an ad hominem attack on the ‘foolishness' of trying to do that. And I remember being very stunned by it, because I thought it was an entirely fair thing for him to have said. And I completely agreed with him.”

No one countered the rebuke—the rest of the board stayed silent, and the discussion moved on. InBev's new offer looked plenty rich compared to Anheuser's own plans for boosting its share price, some of them thought. “There was a feeling that you don't want to push your luck here,” said Jim Forese. “Certainly Ed would not have been alone.” Ambassador Jones had drawn his own line in the sand at $70, and was debating whether to accept a bid that just barely cleared the bar. He was also warily watching the news for details on Fannie Mae and Freddie Mac, two U.S. government-supported mortgage lenders that were verging on collapse that week. If they imploded and sent shock waves through the markets, InBev might abandon its interest in a takeover and Anheuser's stock could drop to the low $50s.

A $70 per share payout from InBev “basically gave the shareholders in cash on day one what we hoped to deliver them over three years, after a lot of hard work and a fair amount of risk,” Sandy Warner said. “So you say to yourself, they are more confident than we that they can get the costs out, and they're really good at getting costs out. That sounded like something we had to think very, very seriously about.”

There was also the question of propriety. Brito had held up his end of the bargain. He had responded with a substantially higher offer in the time frame Anheuser's board had given him, and the board had promised it would get back to him promptly. “Do we go back and jerk them around, say, ‘Well, we want $72 and you've got a deal?' ” Warner said. “Or do you say, ‘We will proceed to see if we can negotiate a contract to do it at $70.' That's what we voted to do. We owed them a ‘yeah' or ‘nay.' That's what we told them we'd give them.”

Some people close to the board, however, were angered by the biting remark toward Ingrassia and the rest of the board's muted reaction. “One of the things that is deflating is when you're in the room with these supposedly iconic guys, and they're either silent and not participating more robustly,” said one Anheuser insider, “or you saw The Third being so heavily biased, and always trying to interpret information to fit his own preexisting view as opposed to really trying to step back and think about some of these things.”

“Whitacre sat there mostly silent throughout. Which made you feel that he had already kind of decided on something and just didn't want to be explicit about it.”

“It was a board that was essentially rushing and wanting to get a deal done. That's why, to be blunt, any narrative that InBev had orchestrated ‘The Great Takeover' . . . it really had a lot to do with a board that was looking to go to the fire exits on this thing.”