Dethroning the King

by Julie MacIntosh

  Some of the men in that room, when they found a moment to catch a breath, decided that InBev’s overture seemed eerily well-timed. The Brazilians had lobbed in this grenade of an offer just as Anheuser-Busch was trying to get the components of its cost-savings plan in place to unveil it to analysts. Was it just a coincidence? Or did InBev somehow know what they were up to?

  Half an hour after The Fourth pulled his deputies out of their brainstorming session, the soccer park’s fax machine sprang to life and spit out the offer letter from InBev, addressed to August IV. A few phrases jumped straight off the flimsy piece of paper. A merger of the two companies would be an “industry-transforming event,” Brito said. “InBev is prepared to pay $65 per share in cash.” Brito worked in a quick shout-out to Anheuser-Busch’s beer wholesalers and its employees, said the merged company’s North American headquarters would be in St. Louis, and said InBev would be renamed to reflect Anheuser-Busch’s heritage. He was clearly trying to dampen Anheuser’s ability to scuttle the deal by rallying popular sentiment.

  International head Tom Santel, who had also been the company’s strategic planning chief for the past decade, had been tracking InBev at the request of Anheuser’s board of directors for nearly two years. Everybody knew that Anheuser was vulnerable and that InBev was a likely aggressor, but they hadn’t been able to agree on a way to defend themselves. With InBev’s fax now sitting there on the table, it felt as though the walls were closing in. “Seeing something like that in black and white, it suddenly becomes more real,” Santel said. “It was like, okay, here we go.”

  The back room suddenly seemed stifling, so as a couple of the executives rejoined the larger group, several others stepped onto an outdoor deck alongside the building to continue their conversation. Another posse of Anheuser-Busch staffers who were congregated on a separate deck glanced over quizzically, trying to discern what was going on. After the men wrapped up their hushed discussions, they filtered back into the main conference room, hungry and scouting for lunch.

  The rest of the angst—ridden strategy committee sat scattered around a few trays of food, picking over sandwiches and salads as they waited for the session to reconvene. It was obvious that something was up—August IV had disappeared, several other top executives had gone missing, and the two bankers who had been presenting to the group had vanished. They all knew what was coming. Their worlds were about to change. For those final few seconds before the boom actually hit, though, the uncertainty was still comforting.

  “I do remember a fairly surreal feeling of being in this back room with August, knowing what was now definitively coming at us, and then walking back into this group of people who had no idea what was going on, who were sitting at a buffet getting food, with all the knowledge of what was coming their way that would change their lives forever,” said one person who had been summoned out of the room by The Fourth. “Knowing that and grabbing something to eat, and thinking about how much this could radically change their lives and the city of St. Louis . . . I do remember thinking it was fairly sur real.”

  Roughly an hour after he left the conference room, The Fourth finally stepped back through the door. His agitated subordinates turned toward him and went silent in expectation.

  “I just got a call,” he said, his eyes flashing around the room to gauge his deputies’ reactions. He briefly sketched out InBev’s offer, gripping the company’s fax in his hand, and then outlined what his team had planned so far in response. A few pockets of nervous chatter erupted as the group started to internalize what was happening.

  “Are we going to fight this?” The Fourth asked, after giving the news a moment to sink in. He amplified his rhetoric a notch. “Are we going to stay together and fight this? What’s the vote?”

  Everyone in the room said yes. Loudly. What else was there to say? At the same time, their shell-shocked minds started to silently race—to warp ahead six months or a year, trying to picture Anheuser-Busch’s future. They had put in 70-hour workweeks for decades. The company was their lives. What would it be like to no longer work for the most famous employer in St. Louis? To no longer feel quietly superior at Cardinals baseball games or to live in the only house on the block that was always stocked with free Budweiser? It was easy to bash The Third and The Fourth for their weaknesses, but they respected them, too.

  “Most of these people are from St. Louis, and this is, like, the dream,” one of the executives said. “They’re the gentry class in their community. They grew up in south city with nothing, and here they are working at A-B. They’re giving beer to their friends on the weekends and are the heroes of the neighborhood. Give that up? I’m not trying to be trivial, but this is how the psyche is in this town.”

  For many of the company’s top executives, there also raged a more complicated internal battle. InBev’s offer valued Anheuser-Busch at a much higher level than anyone else had in years. What would their piles of stock be worth at $65 per share, they wondered, running over the math in their heads. And what if Anheuser-Busch could get InBev to offer even more? That might mean a five-bedroom house in Vail rather than three, they thought—or maybe a 70-foot yacht rather than a 45-foot day cruiser.

  “You’re kind of going, ‘Okay, at least we’re worth something,’ ” one of them said. “You have that little part of you that’s going ‘Geez, the valuation is good. I don’t like the way this plays out. The only way I’ll get my money is if this place goes away.’ ”

  “Isn’t that terrible, though, and selfish?”

  There was another factor adding to their guilt-tinged calculations, too. If they put their efforts where they had just put their mouths and actually fought InBev’s bid, this could be the start of a years-long struggle to fend off one aggressor or another. And if they eventually prevailed, they’d still be stuck with the same ineffective management and paralyzed board of directors. It was, according to one executive, “a little sense of, not fear, but of fatalism, in that ‘Okay, we fight this, and then the same management and board is still here. And they won’t let us do anything.’ ”

  The executives kept their mouths shut as these thoughts flew through their minds, ashamed by some of them and frightened by the lack of clarity on what lay ahead. One senior staffer let his bias slip, however. “We need to get that price up,” he remarked off to the side. The ill-timed comment irked his more loyal peers, but they let it slide. Everyone was too stunned to care.

  “We all knew it was possible because of the rumors,” said one executive who was in the room that day. “But when the news finally came in, it was like a sock right in the stomach. It was hard.”

  InBev’s formal entreaty sent wheels screeching into motion at Anheuser-Busch headquarters and, 900 miles to the east, up and down Wall Street. Emergency meetings were called as August IV began dialing down the list of people who needed to be put on alert. Once Anheuser and its lawyers determined that they should release InBev’s offer publicly to keep shareholders in the loop, press releases were drafted and redrafted. The company’s 14-member board of directors started checking in to determine when it could meet, and lawyers at Skadden, bankers at Goldman, and legions of other professionals who wanted to get in on the action dropped what they were doing and began clearing their schedules. Everyone was concerned, of course, that a company as legendary as Anheuser-Busch was falling prey to a foreign giant. There was also a tinge of excitement at the notion that they could be pulled into the highest-profile takeover battle of the year—and the largest all-cash merger bid ever.

  After the beer executives’ shock wore off that day, they bent their heads toward the conference room table and got down to business. Dave Peacock and Randy Baker, who had returned from their closed-door session with August IV more determined than ever, led the effort. If they had any chance of beating InBev back, they were going to have to convince Anheuser’s shareholders that they had suddenly not only gotten religion on cost-cutting but could also execute on their plans. For a range of frustrating reasons, e
xecution had been Anheuser’s weak point since August IV had taken over as CEO in late 2006. Now they buckled down with renewed intensity, and the ideas came flying.

  “It was totally surreal, because you’re looking across the table at each other and you know it’s not going to be the same,” said Bob Lachky. “Nobody knew what was going to happen. For the first time in a long time, you saw people who had control of pipelines or fiefdoms suddenly being a little bit more open about giving up their goodies, because we had to do it for the common good. It was like ‘Okay, I’ll give up all my perks. My nice little Escalade. ’ Everything is on the table, from the most important budget items to the ones that were perks for top executives. Give it up, give it up.”

  It soon became clear that many of the cuts they were making were embarrassingly easy to identify. Anheuser-Busch had made such a substantial profit on every bottle of beer it sold for so many years that it had never needed to be strict on expenses. As one advisor put it, “Wildly failing at the management of expenses, their margins were ten points higher than Procter & Gamble’s.” Plenty of things could be done differently—or not at all—to generate more money, and InBev was bound to point them out if Anheuser-Busch didn’t find them first. Anheuser had been floating along in its own little free-spending bubble for decades as the real world had developed around it.

  As the group dissolved and headed home at the end of that first long day, they realized they had just become part of America’s corporate history. It wasn’t a part they wanted to play. Anheuser-Busch had always been the country’s patriotic, conquering hero, not a fragile pawn susceptible to foreign interests. This, however, was an unmistakably big deal. The enormity of the moment even compelled some strategy committee members to stash away the documents that came out of the meeting for posterity and safekeeping.

  Goldman’s bankers jetted back to New York that night to start slogging away in preparation for Anheuser’s board meeting, but most of the rest of the group met again on Thursday to finish the cost-slashing effort. By the end of their two-day sprint, they were closing in on $1 billion in pledged improvements, many of which would be in place by the end of the following year. Nearly one-third of that total would come through job cuts of 10 to 15 percent of the company’s workforce. They hoped many of those cuts would come from early retirement and attrition, but with America’s job market worsening every month, that many voluntary departures didn’t seem likely. The company also agreed to raise beer prices and drastically reduce spending on machinery and other expensive improvements.

  “Why hadn’t we done this sooner?” the executives wondered, kicking themselves but also cursing the myopia and delusion that had always hamstrung their company. By waiting until InBev forced the company’s hand, they knew they might have lost the ability to decide their own fate.

  Anheuser’s hubris and naïveté had led to its fall from grace, and it provided an apt comparison to the broader state of America at the time. After years spent downplaying or ignoring developments in other parts of the world, assuming that its supremacy was a constant, America’s political and financial dominance were also at risk.

  “I’ll tell you what it represented,” said one Anheuser advisor. “It represented everything that had gone wrong with American business in the last twenty or thirty years. I think these guys felt that the sun rose and fell in St. Louis. They were so dominant there that they totally missed what was going on in the world around them.”

  By the end of that day, everything already seemed to have spun out of control. Anheuser’s share price jumped another 7 percent once the company had confirmed receipt of the bid, and investors started licking their chops and making wagers on whether Anheuser could fight off InBev. Everyone who had been huddled that morning in the soccer park’s conference room had just become richer. But they didn’t feel like celebrating.

  “It was weird,” one member of the strategy committee said, reflecting on the gut-wrenching day. “It was kind of like when you go to the doctor and you think you have cancer. But when the doctor finally tells you, you’re still not prepared for it.”

  Chapter 2

  Crazy and Lazy at Loggerheads

  The Busch family has cast-iron genes. They don’t change an iota from generation to generation.

  —Former executive William Finnie

  Nicknames and caricatures have stuck with the Busch family’s ruling men over time. August Anheuser Busch Jr., known as “Gussie,” or “Junior,” was the ebullient, beloved showman who charmed the masses into giving him a free pass for having 11 children with 4 different wives. August III, who was called “Augie” or—behind his back—“Three Sticks,” was the calculating, inwardly drawn, power-hungry son who, after years spent waiting for his father to relinquish control, could bide his time no longer and took destiny into his own hands. And August IV, his son, who was usually referred to as “The Fourth,” was the fifth-generation playboy who struggled to shed the cloak of his hard-partying past and who, despite being nicer and better-liked than his father, never matched his talent or met with his approval. In keeping with that tradition, it didn’t take long for Anheuser’s own Wall Street advisors to coin a pair of nicknames for The Third and The Fourth: “Crazy” and “Lazy,” respectively.

  August III won the genetic lottery on June 16, 1937, the day he was born into the wealthy Busch family of St. Louis and, as Gussie’s eldest son, tagged with the first name “August.” The name alone didn’t secure him a seat on the company’s throne. The monikers “August” and “Adolphus” were treasured family heirlooms, and they were sprinkled liberally among the offspring of gravel-voiced Gussie, who served as Anheuser-Busch’s revered president and “second mayor” of St. Louis for 29 years. The Third’s half-brother Adolphus, although he was nearly 15 years younger, could certainly have taken a shot at the company’s top spot. Instead, Adolphus opted against binding himself for life to the all-consuming family business, leaving his more ambitious older brother free to scale Anheuser’s ladder unimpeded.

  Still, The Third’s climb to the top was rocky and isolating. His steely, hard-charging demeanor was distasteful to those at Anheuser-Busch who preferred Gussie’s sunnier brand of exuberance. Both men were singularly driven to succeed and to ensure that Anheuser-Busch remained the most powerful brewer in America. Rather than having that as the commonality that drew them together, however, their shared motivation was what ripped them apart.

  Gussie, whose outsized personality made up for his slight stature, was a schmoozer and a charmer, a friend to U.S. presidents, and a face on the cover of Time magazine. Born in St. Louis on March 28, 1899, he was a barrel-chested soldier who loved cutthroat games of gin rummy, Winston cigarettes, and Silver Bullet martinis. Gussie’s temper, though, could sour in a flash. The family he sired was disjointed and competitive. And both the start and end of his tenure as head of Anheuser-Busch were marred by sadness and controversy.

  He started out in 1922 as a ninth-grade dropout at the brewery founded by his grandfather Adolphus, sweeping floors and cleaning vats. He rose quickly through the ranks and became president in 1946 when his older brother, Adolphus III, died prematurely after taking the reins from their father, who shot himself in the stomach to end a struggle with illness just two months after the 1933 repeal of America’s Prohibition laws.

  Gussie’s talent as a consummate promoter proved evident well before he became president. The company’s iconic Clydesdale horses were his idea: When Prohibition was repealed, he rustled up a team of the draft horses—which used to pull beer wagons in the family’s native Germany—to haul the first post-ban case of Budweiser down Pennsylvania Avenue to the White House for delivery to President Franklin D. Roosevelt. Gussie’s equally charismatic grandfather had once distributed pocketknives to work associates in lieu of business cards, and as he traveled the country 70 years later, Gussie passed out pocketknives of his own. When he left his own knife with one beer distributor or another, they would carefully place it in a glass disp
lay case or show it off to friends, demonstrating how a look through a peephole in the handle revealed a portrait of founder Adolphus.

  “We used to give out replicas of Gussie’s old knife,” said John “Jack” Purnell, a longtime Anheuser-Busch executive who was hired when Gussie was chief. “Gussie could charm you—he could charm anybody. He had a natural flair for publicity.”

  With that flair, Gussie brought Budweiser, the company’s flagship beer, to the country’s thirsty, teeming masses. Adolphus had started to dream of selling beer across America not long after he founded the company, but Gussie had the foresight to build a brewery in Newark, New Jersey, on the country’s east coast. The move was risky and expensive, but it boosted Anheuser-Busch’s production, made it easier to ship beer around the country, and provided a platform for growth in the company’s share of the U.S. market. By the time Gussie was forced out in 1975, Anheuser-Busch was the largest brewer in the world.

  Gussie was best known, however, for his instinctive ability to connect with people. Anheuser-Busch’s slogan, “Making Friends Is our Business,” was very much his business. Eschewing planes and buses for his luxurious, Budweiser-stocked private railroad car, he peddled beer and visited distributors at whistle-stop trips around the country. To pep up purveyors in 1954, he invited 11,000 wholesalers, retailers, and barkeeps out to his imposing home, where he and his third wife, Gertrude, shook hands with a thousand guests each night for 11 straight nights. “When midnight came,” he told Time, “my hand would be so swollen I couldn’t move my fingers.” He spent up to two hours on each of those nights soaking his hand in Epsom salts. All the pain was worth it—sales of Budweiser in St. Louis skyrocketed 400 percent after the event.