Dethroning the King (49 page)

The angry outburst pricked up the ears of some Anheuser insiders who had already been wondering whether someone on their side had quietly promised InBev a “yes” vote if InBev offered $70 per share. The new offer seemed too efficient to be accidental.

“One of the things I immediately thought was that maybe somebody somewhere told somebody else they could deliver the board at $70. The ferocity of the comment was so strong,” said one Anheuser insider. “You couldn't help but feel in a little way that ‘Wait a minute, this felt a little strange.' ”

“It was uncanny to me,” agreed Ambassador Jones, “but I have no idea what went on in those discussions.”

Conspiracy theorists who swore there was a high-level overture behind the scenes had at least one easy target to point to: Sandy Warner. As former CEO of J.P. Morgan and then former chairman of the merged J.P. Morgan Chase, Warner had an obvious connection to Doug Braunstein, the J.P. Morgan banker who pulled together InBev's huge financing package. Each time InBev had issued a press release that coincided perfectly with an Anheuser-Busch board meeting, Warner had gotten a few sideways glances. When InBev came back at $70 a share and Anheuser's board jumped on it, the glares turned downright suspicious.

Warner's connection to Braunstein wasn't helpful in either case. “In fact, it was unhelpful,” Warner said. “It rendered my position in all of this somewhat awkward, I would say. I can tell you I had not a single conversation casually, on the phone, in person, in any way, with anybody at Morgan while this was going on.”

If InBev had offered just $68 per share, which would have put its bid at parity with the plans Anheuser had developed on its own, or if it hadn't raised its bid at all, the board's phone session that night would have been much more interesting. “They could have bluffed us and said, ‘We're sticking with $65, and then we would have had to decide what to do,” said Jim Forese. “All of those get to be the great ‘ifs' of history.”

“What if they hadn't” [raised the bid]? asked Warner, who found it interesting to speculate—even though he had assumed InBev would toss in a few more dollars. “We might then have bought the other half of Modelo.”

Instead, the two sides came to an acceptable price without much of a scuffle at all. “By the time InBev bumped their price to $70, I think the board was just tired,” said one person close to Anheuser. “I think they were also scared.” InBev's budding effort to eject them from their positions wasn't the main thing that had motivated them, but it certainly had a degree of effect.

If anything caused Anheuser's directors to breathe a sigh of relief once InBev's new offer rolled in, it was the realization that selling the company would let them escape a mess they had helped create. It would put an end to the debate over whether The Fourth needed to be replaced, and it would quell the need for argument about why the board had bowed to The Third's wishes and put him in charge to begin with. One of the biggest advantages to selling the company, aside from the money they were set to make, was not having to admit they might have made a mistake.

Back in 2006, when The Fourth had interviewed to become CEO against a couple of other candidates, he professed to the board that he planned to emulate his father. He'd be a hands-on executive, The Fourth said, just like his dad was, and his reputational problems were well in the past. Yet after the board promoted him into the position, they started hearing complaints that August IV wasn't on the job enough—that he was often absent and tough to find. “It was always hard to get him in the mornings,” said one advisor to the company. “It was hard to get him, period.” He was great at motivating Anheuser-Busch's beer distributors, but there was more to being CEO of Anheuser-Busch than giving rousing pep talks.

“I just can't imagine, unless there was a negative personality transformation, how they could have ever made this guy the CEO,” said one Anheuser advisor. “It's one thing if the family had 40 percent of the business. It's just another example of, ultimately, a corporate board having done something that didn't make that much sense. Certainly among the positives of selling the company was not having the world know about the management issues, not having that glaringly in front of them.”

Whitacre had attested in a press release issued on September 27, 2006, the day of August IV's appointment, that he was the individual who was most qualified to lead the company. “The reason he was qualified is because he had done a pretty robust job running the U.S. operation, and he had been quite good at sort of tearing down the walls of history,” said Jim Forese. “He was an advocate of making fundamental changes, given what was going on in the industry. And he had a pretty good record. He had a pretty good team around him.”

“Certainly, no one ever called me and said, ‘How stupid could you be to name The Fourth as the CEO?' ”

“If anyone had been groomed for that position, certainly he had,” said General Shelton. “I mean, marketing, sales, running the brewery, being a German-qualified brewmaster—he seemed to be the full package. We had watched him for quite a period of time, and I think the board felt very comfortable with him moving up to become the CEO.”

Years later, the decision remained contentious. “I tell you, if I were August III and I wanted to continue family control or dominance of the company, I wouldn't have put The Fourth in there,” said one person who has served on a number of high-profile boards. “The behavior pattern didn't make any sense. That was a bad mistake by that board. If a board has one thing it has to do right, it's to get the CEO right.”

The board was basically stuck with the consequences of their actions. They were leaning in favor of InBev's offer in part because “nobody had confidence in The Fourth, and the one who had the least confidence in The Fourth was The Third,” said another advisor. “If they didn't sell the company, they didn't have the gumption to shoot August IV in the head.”

“This was sort of a nice way out after letting The Third convince them to put The Fourth into the top job, which never should have happened in the first place.”

The Third's decision to support his son's CEO candidacy seemed particularly puzzling to those who were now watching him endorse a sale of the company to InBev. It represented a backtrack of epic proportions. “August the Third vouched for him in a very strong way, and August the Third was very persuasive with the board,” said Ambassador Jones.

“He put his son in place. Quite frankly, I think he had hoped that his son would have been more quiet,” said an Anheuser advisor. “But his son then had ideas of his own, and they weren't necessarily the ideas he liked. That really was a problem for him. It's very sad. When August [IV] came into the job, I think he had every intention of trying to get that company turned around. Different people might have different views on what his ability was or wasn't to do that, but certainly, I think his intentions were all very, very good.”

“He got in the role, and his father immediately started to go against any initiative he had. And as a result, I think August became increasingly despondent because of ... his father leading the board against him and openly criticizing his ability to lead.”

With everyone in agreement on InBev's $70 bid that Wednesday night, Sandy Warner called Brito to relay the news. Brito was ecstatic—it was evident over the phone—and he started blazing straight into the specifics of how the companies would negotiate their merger contract, who would work on it, and where. They'd crank all through the night to get the deal done as quickly as possible, Brito pledged.

“Let's turn this over to the people who are actually going to do that work, and they can set the schedules,” Warner replied. He had done enough brokering already, and had no plans to get stuck burning any midnight oil negotiating the merger's intimate details. The two men circled back to their teams of advisors and instructed them to start talks immediately over a deal at $70 a share.

The decision to reject Modelo was a massive disappointment to several exhausted members of the strategy committee, who had cranked relentlessly through the holiday weekend on the belief that they had the board's backing. They had walked into the boardroom on Monday thinking that while the session would be long and difficult, The Third and the rest of the board would ultimately support the Modelo deal. They had certainly spent meeting after meeting talking about it. All they needed to do, the executives had thought, was pull everything together in time.

“We, quite frankly, thought that was one of the great Herculean efforts of all time in the middle of a vortex,” said one person involved in the talks. “To have negotiated it and then to all of a sudden have the board say ‘Nah'—I think the management team in particular probably felt very betrayed.' ”

“We were told on Saturday night and Sunday night that the Modelo deal was done,” one strategy committee member said. “It was like, ‘Yes, we have a chance!' The guys who were working that deal . . . were just devastated to the point where they can't even talk about it. They're so bitter. They were led to believe that Mr. Busch and the board were finally agreeing to do the deal.”

It was impossible not to question the board's intentions after that. Had they ever really considered approving the Modelo purchase? Or had it been a bluff—nothing more than a trump card to use against InBev the entire time? At most companies, top executives and board members work closely in sync. It had become painfully apparent that there was a significant gap of information and intention between The Fourth's team and the Anheuser board. It seemed they were firing in opposite directions. That had never been more clear than it was now, with Anheuser's executives still pushing for the Modelo deal while its board was favoring InBev.

“I think people understandably felt very used and misled,” said one advisor. “We had a very full negotiation, got there, and then the board wanted to see if that deal was possible as a fallback in case InBev didn't pay up more.”

Not everyone was as sympathetic toward Anheuser's executives, however. “I think they were a bit naïve about it,” said one person close to the company. “I mean, we looked at it, we worked at it, but I never expected it would be the thing to do.”

Sandy Warner, even after wading deep into the Modelo talks as the board's representative, wasn't surprised that The Third had been so vocally opposed to the deal. “Modelo was a big price, so you could expect August would not be in favor of that,” he said. “And he had trust issues over the years with some of the players in Mexico, so he was worried about it.”

The concept of Fernández leading the company had proved divisive, and nixing the entire Modelo purchase over those concerns would have had all the hallmarks of The Third's classic deal-avoidance strategy. Despite their close relationship, “Fernández was a deal breaker for The Third,” one strategy committee member said.

Yet by the time the board decided to reach out to InBev, Fernández had already agreed to take a lesser role, and the issue had been put to rest. “He was going to be head of international, and he was totally fine with it,” said an Anheuser advisor. “In light of what we were going to do, in terms of the premium they were going to get, it really wasn't what things hinged on. He was willing to give that up.”

Modelo lost its momentum instead for a different set of reasons—the most important of which was that it wrongly believed Anheuser-Busch was desperate to stay independent. Modelo saw a chance at redemption and went for it all: a huge price, continued autonomy in Mexico, multiple seats on Anheuser's board, a potential CEO candidate, and even a potential announcement of the deal in Mexico City. It had no idea that The Third and other key board members would favor a deal with InBev.

“Modelo's view was that they should be opportunistic—that Anheuser-Busch didn't want to be sold at any price, and therefore they could charge an exorbitant price to help A-B stay free,” said an Anheuser-Busch advisor. “I just think that strategically, they misunderstood the dynamics of the situation.”

It was too much to swallow in the end for Anheuser-Busch, a counterparty Modelo had known all along was going to be skittish. The Mexicans ultimately gave Anheuser a reason to knock on InBev's door.

“The Modelo people should have realized that the deal would never hold water,” an Anheuser advisor said. “They shot themselves in the foot.”

“The family was so greedy,” another said. “Their demand was priced so high that it gave good cover to the notion of selling the company.”

Put more bluntly by a third: “They over-negotiated like crazy. And the board was like, ‘Fuck you.' ”