The Third continued to take tiny, defensive bites at the apple throughout the 1980s and 1990s. He weighed the possibility of a leveraged buyout in the early 1980s when buyouts were all the rage, but nothing happened. He cut a licensing deal in 1980 to have Labatt brew Budweiser in Canada rather than buying Labatt outright, leaving the Canadian brewer ripe for a takeover by Interbrew 15 years later. In 1986, he cut a similar deal with Guinness to brew and sell Budweiser in Ireland, allowing Guinness to later merge into beverage giant Diageo. Anheuser-Busch partnered up with Birra Peroni in 1993 to distribute Budweiser in Italy, with Kirin that same year to brew it in Japan, with Grupo Damm in 1995 to brew it in Spain, and with Kronenbourg in 1996 to brew it in France. By the late 1990s, it was obvious that the beer industry’s growth was going to come outside the United States. The Third’s rivals were snapping up assets left and right by then, and prices had skyrocketed.
“The company became sort of isolated, with some partial ownerships,” said one former executive. “Some of these decisions should have been made in the 1980s and early ’90s. The company had plenty of opportunities back then to reach out.”
“We could claim globalization, but he did it on the cheap,” said a person close to the company. “I think it may have been the case where having his name on the door made him less open to taking the kind of risks it would have taken to have gone global. A bigger thinker would have seen that coming.”
“Part of it was that we were already the world’s biggest brewer,” this person said. “I don’t think he ever saw the threat coming from the outside. I think he was always looking more toward the inside. For whatever reason, The Third didn’t want to take that level of risk. It’ll be one of those things he’ll take to his grave.”
Of all of Anheuser-Busch’s missed opportunities, the most fateful was a chance The Third had to snuff out InBev before it was ever created. In the early 1990s, Anheuser decided it wanted to partner up with one of the two top brewers in Brazil in order to launch Budweiser in the fast-growing country. It interviewed top Brazilian brewer Brahma and its second-largest competitor, Antarctica, and eventually entered into negotiations with both to see which would offer the better deal.
Brahma was headed by a powerful trio of investment bankers—Marcel Telles, Carlos Alberto da Veiga Sicupira, and Jorge Paulo Lemann, the most famous banker in Brazil, who was as well known for the foiled 1999 attempted kidnapping of three of his children as he was for his professional successes. Two gunmen had unleashed a torrent of point-blank bullets at the driver of his children’s sedan, but the heavily armored car saved their lives. Lemann moved his family shortly thereafter to Switzerland, his father’s country of origin.
The reclusive Lemann and his two partners had taken control of Brahma in 1989 after selling Garantia, an investment bank that was known as “Brazil’s Goldman Sachs,” to Credit Suisse First Boston for $675 million. They funneled a fraction of that cash into their new beer endeavor. Telles became Brahma’s chairman and chief executive officer, and the three men infused sleepy Brahma with their own competitive brand of banking culture.
Brahma’s trio of bankers proved to be tough negotiators, so Anheuser-Busch went with the easier route in 1994 and bought a minority interest in second-ranked Antarctica instead. The partnership progressed along smoothly for several years until Brahma reappeared and stunned The Third and the rest of his team by making a bid to buy Antarctica outright. Anheuser-Busch analyzed the situation and concluded that the Brazilian authorities would never let the deal close for antitrust reasons—it would merge the country’s top two brewers into one that held huge regional power and influence.
They were wrong.
Brahma won clearance for the deal and merged with Antarctica in 1999 to create AmBev. Under the trio of bankers’ leadership, AmBev took off like a rocket.
The Third woefully misjudged what he was up against in Brazil, though he was given several chances to help steer AmBev’s course. By the mid-1990s, growth-hungry Telles and Lemann had developed a sweeping vision for the future of the global beer industry, and they invited The Third to be part of the plan. Telles, who had spent some time with Lemann, The Third, and Purnell during a 1991 meet-and-greet trip to Busch Gardens in Williamsburg, Virginia, called to request another meeting, this time in St. Louis. He showed up at Anheuser’s headquarters alone, clutching a bold proposition.
“Let’s form the Coca-Cola of beer,” he said to The Third and Purnell, explaining that if Brahma, Antarctica, and Anheuser-Busch merged, the combined company would have a lock on the North and South American beer markets.
“It was about a vision of the future in the Americas, where they would make a lot of the calls in other countries and we would make the calls in the U.S.,” said Purnell. “It was a merger proposal; it was a “Let’s get married, we can do better together than we can alone.’ ”
The Third and Purnell had never encountered anyone with such grand ambitions. Telles’s supreme self-confidence—the sense of manifest destiny he radiated—was off-putting to the two St. Louisans, who still felt they were learning the ropes on the international front. Telles’s pitch made it clear that he was way out in front of them.
“This proposal did not appeal to August,” Purnell said. The Third couldn’t stomach the concept of a tie-up that would put the Brazilians in charge outside the United States. So when Brahma and Antarctica decided to join forces, Anheuser-Busch backed itself out of the situation.
“That turned out to have been a fateful—I won’t say ‘fatal,’ but rather a ‘fateful’—decision,” Purnell said. “We ended up exercising our “put” in Antarctica rather than joining their consolidated board. They then acquired Labatt in Canada, then went over to Europe, and then finally came back to make their offer for A-B.”
The Third seemed to exert almost as much effort finding ways to avoid doing deals as he would have if they had actually happened. On the few occasions when transactions got close to the finish line, Anheuser’s team would come back at the 11th hour and ask for a lower price or better terms. If they got what they asked for, they would turn around and ask for a little more—and then a little more, until the other party finally refused to budge and the whole thing fell apart.
“He was always trying to strike a deal that completely benefited A-B,” said a former strategy committee member. “That killed more deals. There was always that little provision that tilted our way that absolutely prevented it from ever going outside the boardroom. That was a classic way of stopping everything.”
“We couldn’t roll the dice unless someone was willing to sell us a crown jewel at a low price, risk-free, which for some reason no one was willing to do,” said former executive Bill Finnie, with an ample dose of sarcasm.
Rather than buying important assets, The Third and the rest of Anheuser’s old guard fell into the habit of finding ways to justify standing still. There always seemed to be a reason why each of the assets simply wasn’t good enough for Anheuser-Busch. It was “a cult of admiration,” one company advisor said. “It was like a mutual admiration society.” They’d criticize rivals for doing deals that belied their global ambitions, only to realize down the line that the deals had proven successful. “We didn’t have long range corporate planning at all,” said one former executive, who criticized Anheuser’s corporate planning staff for being in The Third’s back pocket. “We just didn’t have it.”
“We’d sit there and ridicule Coors for going into the UK, ridicule SAB for buying a stake in Miller,” the executive said. “How do you keep criticizing people like this? How do you look at every deal like it can’t work, it can’t work, it can’t work? It’s working!”
Former director John Jacob stepped forward out of frustration during one meeting and asked, “How is it that we can never justify buying anybody, yet we belittle anybody else who has bought somebody? And then a year later, we sit here and realize that now they’re making money?”
“He asked these types of pointed question
s for about a year or year and a half until he gave up,” said one of his former colleagues.
“We just coasted for fifteen years because we were so strong. And it caught up with us,” agreed Bill Finnie, referring to the late 1980s and 1990s. “They really didn’t have a strategy for about a decade or a decade and a half.”
To The Third’s credit, there were legitimate arguments against some of these deals. The decision to expand into nascent emerging markets wasn’t a no-brainer. The two giant brewers that successfully did so—SABMiller out of South Africa and InBev out of Brazil—had no alternative. They started out there.
“When you have a business that was as profitable as his was, where the returns are as strong as his were, I’m not sure anyone would have been so smart to say, ‘We’ve got to take over the world,’” said one Anheuser-Busch advisor. “We understand now why he should have, but it would have diluted his margins and diluted his returns. So it wasn’t obvious. I think it’s hard to criticize him for that, though it’s very easy with hindsight.”
The Third had his staffers run the numbers on a range of deal-making possibilities over and over again. They considered everything under the sun. The verdict was usually the same. Why would Anheuser want to sink money into some risky foreign brewer when it could generate far more bang for the buck by investing its cash in the United States? International expansion didn’t seem to make much sense at the time, at least in the short run.
“When evaluating other businesses relative to the U.S. beer business . . . almost any other investment paled by comparison,” explained one former top Anheuser-Busch executive. “Now, there comes a point where you have to think beyond next year or three years and say, “In ten years, the map is going to be global, it’s not going to be domestic, and these other companies are expanding. I need to position myself for that eventuality by making decisions today that might hurt the short-term return on investment, but are smart overall.”
The Third had a strong aversion, in particular, to taking on too much debt, which would have been a requirement for any takeovers of size. The global financial crisis that started in 2007 showed the hazards of excess debt, and many companies whose top executives were less cautious than The Third became part of the wreckage. August III’s aversion to risk, however—both financial and operational—limited Anheuser-Busch’s growth opportunities. He preferred to reinvest the boatloads of cash Anheuser churned out each year back into his business.
“That’s the part that just doesn’t connect to me,” said a former executive who watched The Third shelve a long string of potential transactions. “As smart of a finance guy as he was, he knew he had enough money to pull off these deals. A-B was flush with cash.”
“A-B was not only better financed, it was the largest brewer in the world at the time,” said beer industry scribe Harry Schuhmacher. “They could have easily stretched its balance sheet a little bit to get those deals done, but they were unwilling to do it.”
Getting the numbers to work wasn’t the only obstacle on the international front. The Third was a control freak of the highest order, and it was impossible to imagine that anyone could run an Anheuser-Busch operation abroad with the same oversight and intensity he showed in St. Louis. In many cases over the years, his rigid dedication to quality paid off. It didn’t make it easy to find suitable takeover targets, though—or the people to run them.
“It was clear to me he couldn’t go beyond the U.S.” said Rick Hill. “He was not a very good partner with anybody. We would be a minority partner, but August could never say, ‘You know the market better than I do, you run it.’ He was a hard guy to deal with, I’m sure, for the minority partners. He was that kind of guy, though. He had strong principles.”
Rather than contract brewing beer on location in Asia, for instance, Anheuser used to ship beer in sealed containers from the United States all the way to Japan. It gave the Japanese a taste of the real King of Beers, but the costs were huge.
“We never had any respect for anybody else’s ability to make beer,” said one former executive. “We didn’t trust anyone. We didn’t trust consultants, we didn’t trust advisors. We only trusted one man’s opinion on what we should do or shouldn’t do.”
While The Third had a talent for seeming to be everywhere at once, even he couldn’t have it both ways when it came to global expansion. He couldn’t possibly command operations in other countries the way he did in St. Louis, with his hands in every pot. Still, the alternative—easing back and letting someone else have day-to-day control of foreign assets—made him too uncomfortable.
The Third preferred to default to the same triggers that had always yielded growth for Anheuser-Busch—focusing on advertising and brewing consistent beer. The usual triggers weren’t going to cut it anymore though. To compete in the new, globalized brewing market, Anheuser-Busch needed economies of scale—the cost savings big companies can generate relative to their smaller counterparts. While its rivals grew into brewing behemoths, Anheuser-Busch engineered its own destruction by becoming overly dependent on American consumers and turning its back on hundreds of millions of increasingly affluent drinkers around the world.
“We were quite aware that we went from being the largest brewer in the world to a company that looked up to InBev,” said Douglas A. “Sandy” Warner III, the former chairman of J.P. Morgan Chase and one of Anheuser-Busch’s most powerful board members. “I remember like it was yesterday sitting in the boardroom, and somebody saying, “Are we comfortable that in the process of the decisions we’re taking . . . our relative size and scale is diminishing? Are we comfortable about that? Because that has implications. And we were. I think that was unanimous. We felt we were doing the right thing.”
“The Third screwed the whole company up,” said one Anheuser-Busch advisor. “Remember, InBev was ’this’ big, SAB was ‘this’ big, and they were ‘this’ big,” he said, spreading his hands farther and farther apart as he named each brewer. “Anheuser stayed that big. Remember, the first deal that AmBev, the Brazilians, tried to do was a merger with Anheuser-Busch way back when, and he threw them out. They then went and did the Interbrew deal. He never globalized. He turned down every single opportunity.”
In 2004, Anheuser-Busch, whose employees had long boasted about working for the world’s largest brewer, abruptly lost that title. AmBev, whose proposals for global domination Anheuser had shunned, announced that March that it would merge with Belgian brewing giant Interbrew in an $11.4 billion deal to create the world’s top brewer by volume. SABMiller outstripped Anheuser in size not long afterward.
Anheuser-Busch’s strategy committee, which had started debating the merits of a big acquisition years earlier, began to actively argue over whether they needed to merge with another brewer, and its meetings grew heated and contentious. “It all happened at once,” said one committee member. “It was just amazing in those strategy committee meetings, because people were just blaming everybody.”
Anheuser’s executives started tossing around a range of options, all of which had been run over ad nauseam in the past. Some wanted to buy SABMiller. That would require a huge pile of debt—if SABMiller’s Mackay was even willing to hop on board. Others focused on whether they could buy the rest of Grupo Modelo, the Mexican brewer in which Anheuser-Busch had already amassed a half-stake. However, the Modelo people disliked August III and much of the rest of the old guard at Anheuser-Busch. They even considered a merger with Dutch brewer Heineken, but dealing with the Heineken family was too complicated. The Third hadn’t left his son a whole lot to work with.
He should have employed “an M&A strategy that had built up the business more and was more global,” said one advisor to the company. “They were so limited in terms of international scope and the cost structure. It wasn’t just The Fourth who did this. If anything, The Fourth came in and tried to be more forward-leaning, and The Third didn’t want him to be.”
“I got the sense that he was always trying to goad his fathe
r into doing more internationally, and his father would say, ‘That’s not your purview,” said Harry Schuhmacher. “Your responsibility is the United States.”
As Anheuser-Busch began searching for ways to play catch-up, China was an obvious answer. The Third had recognized China as a fast-growing and lucrative market, but his investments there had been cautious. Anheuser owned a tiny stake in Tsingtao, and it had also started brewing Budweiser locally in 1995 after buying a majority interest in China’s Wuhan International Brewery. So in 2002, with Pat Stokes at the helm, the company decided to ramp up its exposure to China by cutting a deal to slowly raise its Tsingtao stake from 4.5 percent to 27 percent. The price Anheuser paid was rich for the limited amount of additional authority it won—the Chinese government remained Tsingtao’s largest shareholder. Tsingtao was something people could hang their hats on in St. Louis, however, and it emboldened the company for when Harbin Brewery, China’s fourth-biggest brewer at the time, came up for grabs in 2004. In an uncharacteristic move that indicated Anheuser-Busch had set aside some of its reticence, it won a month-long takeover battle for Harbin after SABMiller withdrew from the bidding. Victory didn’t come cheaply, however. SABMiller already owned a significant stake in Harbin, and Anheuser had to pay off both SABMiller and Harbin’s other shareholders at an inflated price to acquire the shares it didn’t already own.
Even after showing aggression in the Harbin battle, Anheuser couldn’t catch a break from those who felt it was already too far behind. “China was, like, an accident,” one advisor to the company said. “A relatively small piece of the business.”
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