“That’s one of the things you consider in a takeover battle—do you replace him?” one advisor said. “But it never really was a subject of conversation.”
Chapter 12
The Montagues and the Busches
You had to go through the motions. If you didn’t go there, you weren’t going to get Brito to up the bid. From the company and the bankers’ point of view, the more real it looked the better.
—Anheuser-Busch advisor
At 8 A.M. on Wednesday, June 18, three days after InBev fired off its warning letter over Anheuser’s dalliance with Modelo, Morgan Stanley’s Rob Kindler and several of his colleagues sat down at the downtown Manhattan headquarters of Goldman Sachs, a monolithic, maroon-marbled building at 85 Broad Street, for their first meeting with Goldman’s Ingrassia and Gross. By this stage, the Anheuser-Busch board had explicitly instructed Goldman not to involve Citigroup in meetings or phone calls related to Modelo. Ingrassia and Gross felt bad about the slight, since their working relationship with Kalvaria and his team was strong. The board, however, had made up its mind.
“The Bud board and management team had a point of view that there had to be a single voice talking to the other side, and for whatever reason, they wanted that to be Goldman,” said one of the company’s advisors. “I don’t think it was a lack of confidence in Citi. I don’t think it was evil in any way. I think it was that ‘We’re just going to have one voice on this. We’re going to make it simple on us, and we’re going to make it simple on the other side.’ ”
By the time they met that morning, the parties had only been negotiating for five days. Before things progressed any further, Modelo’s team wanted to make itself clear on a few points. They had no intention of accepting any bid that wasn’t richer than InBev’s bid for Anheuser-Busch, a stance that Kindler reiterated to Ingrassia and Gross. Modelo’s higher-growth beers like Corona and Pacífico sat in a category above Anheuser-Busch’s tired, old brands like Budweiser and Michelob, Kindler explained, and Modelo deserved to be paid accordingly.
Modelo, conversely, was happy to take as much stock as Anheuser-Busch could offer as payment for the takeover, because its five controlling families believed that combining the two companies would boost the shares’ price over time. There was one critical reason for the families’ confidence in the deal, which led Kindler to his third point: Carlos had to be put in charge. With Carlos at the helm rather than the young Busch scion, the Mexicans felt their investment would be safe.
Kindler and his team then headed back down to Mexico City that afternoon to prepare for a meeting with Carlos and Mariasun. They all assembled the next day at Carlos’s family office, just as they had eight days earlier. This time around, though, the talks weren’t speculative. Modelo’s controlling families were now closely monitoring every development, and Carlos was due to present his views on the proposed takeover to Carlos’s uncle, Don Antonino, at their office later that day. With a loose offer from Anheuser-Busch on the table, they started hammering out the details.
Carlos and María approached the concept from different angles, but they both favored selling to Anheuser-Busch. María felt the time was right from a financial perspective. The Americans were offering a very rich price—a price they might never see again—and she favored accepting the offer before the pressure on Anheuser-Busch wore off. Carlos, meanwhile, was staring at a chance to run the entire company—to seize operating control of one of America’s crown jewels. He wasn’t eager to go down in history as the man who traded his family’s legendary company to a rival. If he could be CEO of all of Anheuser-Busch Modelo, the controlling families’ new investment in the company’s stock would be under his tight purview. They would own the biggest stake in what would be a much bigger company, and Carlos would be running the show.
“From an operating perspective, which is the budgets, business plan, distribution, all of that—that would be controlled by Anheuser-Busch,” one advisor in the negotiations said. “But on the other hand, Carlos would be the CEO of Anheuser-Busch. So there was a lot of elegance in that transaction. He could basically say, ‘Look, I personally made sure that Modelo stays in Mexico and keeps its name, and that can’t be changed.’ ”
“From Carlos’s perspective, this was pretty straightforward,” this person added. “I’m going to get a premium, but I’m also going to run the company. It’s going to be called Anheuser-Busch Modelo, and life is great.”
Six months before InBev’s bid, The Fourth had acknowledged in an interview that Anheuser was batting the concept of a deal with Modelo back and forth. “There are . . . a lot of opportunities out there in working with Grupo Modelo and Carlos Fernández,” The Fourth said. “He’s a superstar. [T]heir ability to come along with us, if we can convince them that a certain opportunity would make sense for both of us, would I think be a very interesting proposition.”
Like August IV, however, Carlos answered to a higher boss. Ninety-year-old Don Antonino wasn’t as controlling or megalomaniacal as August III, and he hadn’t continued to wield his power as obsessively after retiring. From the moment talks started with Anheuser-Busch, though, Carlos and María had known he’d be the lynchpin who would either fasten their bargaining effort together or let it fall apart.
Don Antonino had been made the company’s “honorary life chairman” in 2005 when Carlos was named chairman of the board. He was the keeper of the company’s flame and its revered patriarch. More importantly, though, he held Modelo’s purse strings. The families that controlled Modelo did so through a series of complicated trusts, and Don Antonino, simply put, ruled those trusts with a blocking vote. He couldn’t unilaterally set new courses of action for the company. He could, however, vote “no” and send a deal with Anheuser-Busch straight to the scrap heap.
The key to winning Don Antonino’s support had more to do with pride and nationalism than with numbers. He was certainly happy with the rich bid Anheuser-Busch had put on the table, and he was fine with the idea of putting his nephew in charge. To really convince Don Antonino to give his blessing, though, Carlos knew he would need to preserve as much of Modelo’s independence and Mexican roots as possible. Antonino sported a high social and political profile in Mexico, and his values were concentrated more heavily in those areas than on extracting the last possible nickel from Anheuser-Busch.
“He’s already a very wealthy man,” said one person close to Modelo. “His motivation was not just ‘Can we get a great premium?’ His motivation really was preserving Modelo.”
Carlos, María, and their advisors agreed to insist that Modelo would be awarded at least three seats on the merged company’s board of directors, two of which they would occupy, and to require that its operation in Mexico remain there as a separate entity under the same name, with a governing board chaired by Don Antonino. So far, they had gotten little pushback on those points from Anheuser, which agreed that it was in everyone’s best interests to keep Modelo’s structure intact. “We both wanted Modelo to look the same down in Mexico,” said international head Tom Santel. “We weren’t going to plaster our logo all over the place. We wanted them to keep running it.” That would prove key to winning Don Antonino’s support, and it could also help suppress the notion that Carlos was surrendering the family business to the Americans. In fact, Anheuser-Busch wanted a commitment that Modelo’s controlling families would stick around as major shareholders after the deal occurred. “We did not want them to throw the keys on the table and walk away,” said Santel.
The proposed deal’s structure was uncannily similar to that of another deal done between a giant U.S. company and a Mexican target: Citigroup’s acquisition of south-of-the-border bank Banco Nacional de Mexico (Banamex). It wasn’t a coincidence. Anheuser-Busch and Modelo deliberately copied the structure of the Banamex deal, down to the separate board of directors that Banamex maintained after the acquisition.
Carlos outlined the transaction to Don Antonino in the boardroom of their family offices later in
the day on the 19th. He always tried to catch his uncle in the mornings when he could—given his advanced age, Don Antonino preferred to spend his afternoons reading at home. His view, as he expressed it that day, was that the merger would benefit Modelo’s families by giving them a controlling stake in a much more powerful brewer. The deal would create a bigger, better company for both Anheuser-Busch and Modelo. To Carlos’s great satisfaction, Don Antonino granted his blessing to move forward.
North of the border, in St. Louis and New York, the Modelo option was sparking hope for Anheuser’s team. Company staffers and strategy committee members who had been tasked on the potential transaction, which had been assigned the Shakespearean code name “Project Montague,” were clocking long hours in the hopes that they could save their company by finally closing a deal that had never worked in the past. If they could bring the Modelo transaction to within feet of the finish line, they believed, it would be pulled across with the support of August III and the board.
Responsibility for hammering out the Modelo deal had fallen to The Fourth, who had never before handled a task of such mission-critical nature. He, however, then delegated much of the work to a range of subordinates. While Anheuser’s corporate planners had generally been stuck under The Third’s heavy thumb in the past and had consistently endorsed the courses of action—or more appropriately, inaction—he favored. Now, after decades of extreme caution, the team was now hurriedly putting together a proposal that seemed to heavily and even desperately favor Modelo. With the whole world watching, the situation was putting some of the board’s members ill at ease.
As discussions between Modelo and Anheuser grew more intense in late June, and as the Anheuser-Busch board became increasingly uncomfortable with how The Fourth and his deputies were handling the matter, Sandy Warner stepped forward to put an end to the game of telephone and serve as a more direct line of communication between Carlos Fernández and the Anheuser-Busch board. Warner had known Fernández for a long time, and with so many issues up in the air, he felt it was time to start making more decisions at the board level.
“He sort of said, ‘Let me be in on some of these phone calls,’” said a person close to the talks. “He was gradually losing his patience with the whole situation.”
Warner’s shift into a more active role coincided with a critical decision by the board that sent Modelo reeling. While The Fourth and Santel had clearly suggested that Fernández could take over as CEO, the board still wasn’t keen on the idea. They were worried that they might look reckless for offering to pay such a high price for Modelo while also relinquishing control of the company, all to avoid talking to InBev. That didn’t seem to provide for a great deal of “independence” on Anheuser’s part in the future.
“I think people just thought that it was over-reaching, with this premium, that the guy also runs the company,” said one advisor. “To be fair to Modelo, they probably felt that we were in a position where they were key to us staying independent.”
The board’s other concern was that putting Fernández in charge wasn’t the easy fix to Anheuser’s “CEO problem” they were looking for. The Fourth seemed fine with the notion of installing Fernández as CEO or co-CEO. “The Fourth, I don’t think by himself, had any issue with Carlos playing a very big role,” said one Anheuser advisor. “The Fourth was in no way standing in the way of that and was very open about it. I think The Fourth was pretty supportive of it all the way through.”
“The bottom line is he’s a really nice guy who should have never been CEO of a company like Bud, and every director knew it,” said another person close to the company.
Yet Fernández, the best-positioned candidate to replace The Fourth, was too much of an unknown quantity for some members of the board—even though he had served with them as a director for years. Some felt that while he would be a boon to the company’s management team in general, he wasn’t ready to be CEO of a global corporate giant with decidedly American roots and culture. A few argued that he should move to St. Louis first to get to know the company’s operations and prove himself. If that went well, he could ascend to the CEO’s spot a few years down the line.
“Carlos is a terrific guy, but he’s not a U.S. CEO—on top of the details, running a business day to day,” said a person close to Anheuser. “And he’s not a figurehead.”
Once the board determined that it wasn’t willing to throw its weight behind Carlos as the company’s designated savior, it decided that The Fourth had to rescind his offer. He needed to inform Carlos Fernández that the CEO spot was off the table.
It wasn’t going to be an easy message to relay, given the history of antagonism between the companies, and The Fourth knew it would require more than a cell phone call from outside his local Starbucks. He had to do it in person. “I think he felt he had a personal relationship with this guy—he wanted to look him in the eye,” said an Anheuser-Busch advisor. “That was the way he did things,” said one of his former deputies.
So August IV’s team reached out to Modelo to schedule a meeting with Fernández on Tuesday, June 24, without disclosing its nature. To accommodate their busy schedules, the two CEOs chose a regional airport situated near the U.S.-Mexico border in Texas, right on the line between Missouri and Mexico City as the crow flies. They agreed to fly in on their private jets and convene, in true Anheuser-Busch form, at an airport hangar that had space available for a meeting.
As usual, August IV traveled that day with Pedro Soares, his omnipresent right-hand man. The Fourth, like his father, employed a small army of people to perform business and personal tasks for him that ranged from the sundry to the substantive. And amidst his entourage of secretaries and hangers-on, there was always one person it seemed he couldn’t live without—his head handler and personal attaché. Evan Athanas had helped The Fourth in that capacity for a while before shifting into a vice president’s position, and Soares, another executive, had then moved into his place.
“This is a legacy of The Third, who always needed somebody to make him feel like he was a bit of royalty,” said one person close to Anheuser-Busch. The Third’s traditions of forced subordination and hierarchy stretched across the entire company, from the huge number of personal secretaries Anheuser-Busch employed to the executive assistant training and apprenticeship program The Third had long espoused.
“August Busch, and it spanned from III to IV, ran the company like it was in the 1950s with chiefs of staff and little people running around,” said a company advisor. “August IV did what his father did, and he used to have chiefs of staff.”
Soares was a competent executive in his own right, having run Anheuser-Busch’s operations down in Mexico for seven years. He was one of several Anheuser executives who served on Modelo’s board, and he spoke fluent Spanish, which helped Anheuser’s cause south of the border. Soares’s welcome presence tended to help offset Modelo’s distaste for many of Anheuser’s other executives.
The greatest impact Soares had, however, stemmed from his ability to keep August IV on message. He would often speak in The Fourth’s stead during meetings, and he interacted with the company’s advisors on his boss’s behalf. At times, Soares would even pull Anheuser’s bankers aside as they prepared The Fourth’s remarks to the board to make sure things were being captured the right way. He traveled with The Fourth to Mexico, sat in on most of The Fourth’s meetings with Fernández, and was part of nearly every Modelo-related phone call that occurred.
“Everyone should have one,” joked one person close to the company in reference to the role Soares played before softening his stance. “I never had any evidence other than that he was a competent, informed business person who was willing to play the role of aide-de-camp, Gal Friday, and conscience to some extent. This is the guy who made sure that August woke up in the morning. He provided the sorts of backbone of professional support August needed, and August needed it. August needed a full-time confidant, conscience, motivator.
“August was not
a hard-working, detail-oriented guy. He needs somebody, like a doppelgänger. Pedro was August when he needed to be.”
That was the type of thing that unnerved the company’s board of directors, however. The Fourth’s need for wingmen had presented problems in Tampa, and it came into play again that day in Texas.
Fernández arrived with a single lawyer in tow, and after the men greeted each other and sat down, it was Pedro Soares who started talking. The Fourth had pushed for an in-person meeting with Fernández to relay the bad news, and the two men had a relatively strong relationship. When the time came, though, he had Soares deliver the blow to his Mexican colleague rather than handling the matter chief-to-chief.
When The Fourth debriefed Anheuser’s directors at their board meeting the next day—the day on which the board decided to reject InBev’s $65 per share offer—he even made a deliberate and somewhat bewildering point to tell everyone that Pedro had done a great job in relaying the message to Fernández. He was kind to praise Soares in such illustrious company, but the whole thing seemed odd. As one person close to Anheuser phrased it, it was as if he had set up a meeting with a fellow CEO to discuss something critical and then sent his secretary in to explain the scenario.
As Soares laid everything out to Fernández that day in Texas and watched Fernández’s eyes grow dark with anger, The Fourth looked ashamed. Ashamed that he had offered to subordinate himself to a rival, and ashamed that he now stood there in front of Fernández, a man he had come to know and respect, to retract the offer. He had grown so constrained by his father and the board of directors that it seemed like he wasn’t even at liberty to quit.
The news completely blindsided Fernández, who had assumed Anheuser-Busch wanted him to pack up and fly to Texas for a productive deal-related meeting, not to slap him with a demotion.
Dethroning the King Page 29