Dethroning the King

by Julie MacIntosh

  Anheuser’s board members weren’t panicked when they arrived at the airplane hangar that morning—the release of InBev’s nominees was a logical next step in the wake of its lawsuit. “It’s a normal tactic. No big surprise,” said Jim Forese. The development did spark some debate over how likely they were to keep their jobs, however, and there was no denying that it made that day’s already-important meeting seem even more critical.

  The board was planning to debate the Modelo option yet again that morning as it decided how to handle the attempted hijacking of its ranks. Things had changed significantly, though, since the previous week. Anheuser-Busch and Modelo had finally come to terms on a deal, after decades of maddening stops and starts.

  The teams on both sides of the border were pumped. They had worked feverishly over the extended weekend to cram everything together, from details of the deal itself to the press release and press conferences they would use to announce it to the world. A team of Anheuser executives had holed up with Goldman’s bankers in the meeting rooms at Skadden’s offices to negotiate with Kindler, Mercado, and the rest of Modelo’s team. After a spirited set of talks, they were ready to go. And the deal had the blessing of Modelo’s controlling families, who had been rounded up for conference calls several times in recent weeks as terms of the sale kept changing.

  The two companies’ PR staffers were trying to figure out the best way to announce the deal. Should it be rolled out in Mexico City? That had been the thought at first. Or maybe in two cities on the same day, one in the United States and one in Mexico? The Fourth could start the day with an announcement down in Mexico, the companies decided, and then he and Fernández would fly to New York for round two. All Modelo’s side needed was the all-clear from Anheuser’s board.

  “We had fully negotiated a deal,” said one Anheuser-Busch advisor. “We had a deal that was done.”

  The board was planning to tackle a couple of issues that Monday, but its clear priority was deciding whether to pull the trigger on Modelo. The acquisition’s terms had already been recut several times as various board members—and often, The Third specifically—had raised concerns about one point or another and asked that they be addressed.

  As the directors settled back expectantly in their usual chairs, waiting for the Modelo pitches to begin, Tom Santel stood up to assemble the management team’s presentation materials. August IV remained in his seat, and he stayed there as his deputy launched into the opening bars of their pitch in favor of the deal. A few people in the room were surprised to see The Fourth behaving so passively, given how important that day’s presentation was to his company’s independence. To others, though, his decision to let Santel take the lead was par for the course. “I’ve seen enough of him, and heard enough, to know that his doing less rather than more was not surprising,” said one company advisor.

  August III, like his son, also lived up to his reputation that day. He had walked into the airplane hangar with a strong sense of how the board’s meeting would end before it even began.

  As Santel finished up his pitch on why the Modelo deal made sense, The Third started rifling through a pile of documents in front of him. Rather than showing up that day with a pen and a blank pad of paper, he had asked several of Anheuser’s executives and bankers—most of whom were already scurrying frantically over the weekend to nail down the Modelo deal—to pull double-duty and run separate sets of numbers that he could analyze on his own. By the time the last of Anheuser-Busch’s advisors arrived on Sunday evening, The Third had already summoned Santel and M&A head Bob Golden out to his farm for a full briefing session, where he asked them to present their calculations on Modelo. He had run the two men ragged all weekend with demands for information and had requested details from Goldman, Citigroup, and Skadden as well.

  “He actually got a lot of data and pulled it all together,” one advisor said, “such that by the time he got to the meeting, he already had it all. He had all of these pre-done questions he had already thought through. And look, to be honest, that’s a good board member. He was the most prepared board member. He was more prepared than The Fourth. He worked three times harder.”

  “He has a reputation for this even from when he sat on other boards,” another advisor said. “When he sat on Whitacre’s board [at AT&T], there was always separate analysis done for him because he always wanted to see different types of analysis than what was being done as a matter of course.”

  Santel’s presentation was less than polished—his team had rushed to cram everything together by Monday while also catering to The Third’s demands for face time, and he had worked virtually nonstop except to sleep. Still, he was pumped. He thought his team and Modelo had hammered together a strong deal.

  None of Anheuser’s executives, therefore, expected The Third to spring out of the gate with as much force as he did at that moment, when he launched into a pointed series of questions about Santel’s assumptions and financial projections, using the information they had helped him gather over the weekend as ammunition. They were stunned by the chilly reception.

  “Tom Santel had been sort of his fair-haired boy, and it was kind of surprising that he took such vigorous issue with what Tom had just presented,” said Ambassador Jones. “I do remember that Tom Santel was both surprised and very disappointed.”

  It was no surprise that The Third was hesitant about buying Modelo. He had never favored the idea. “The way InBev and SAB had had all of these opportunities to grow is that he never wanted to do any acquisitions,” one advisor said. “His being anti-deal in general was not, I think, new to these people.”

  As The Third ticked aggressively down his list of concerns, taking issue with the deal’s high price and the risks it involved, it dawned on Anheuser’s staffers that his efforts to fix and fine-tune the Modelo proposal in recent weeks may have been aimed more squarely at nixing it. They had essentially negotiated two different deals back-to-back to meet his demands, and he still wasn’t happy. “We got one deal done, he kept trying to get us to get more stuff to see that the deal was killed, and we kept getting everything he wanted,” said one executive.

  “The Third just ripped the thing apart,” said one person who watched Santel’s pitch get torn to shreds. Modelo was the fly The Third couldn’t swat gently out of the air, so he was now slamming his fist down onto the table to kill it.

  InBev’s team took great care to unfurl a takeover strategy that gave its bid the highest possible chance of success. It spent months hemming and hawing over the particulars—everything from the state of the financing and political environments to how much it cost to feed and brush Anheuser’s 250 Clydesdales.

  The Brazilians ended up having the unlikeliest ally imaginable—one who was able to sway Anheuser’s board much more effectively than any of InBev’s best-laid plans.

  August III, as his son was discovering that day, had a new set of priorities. While The Fourth and his team worked frantically to structure the company’s defense that June, his father had quietly indicated to a few startled Anheuser insiders that he would support a sale of the company to InBev. The 70-year-old former chief appeared to have determined that a deal was inevitable, and he was focused on getting the best price possible.

  Virtually unrecognizable in wrinkled shorts and ratty sneakers, The Third had crept up two weeks earlier on Citigroup’s Kalvaria, who had just landed at the company’s airplane hangar and was about to grab a car into town for a meeting at Anheuser-Busch headquarters.

  “Hello, Leon. Come here, let’s go talk,” The Third whispered brusquely, all but dragging the startled banker into the hangar’s tiny ground floor bathroom. Kalvaria had thought he was a janitor.

  The Third stepped into the bathroom’s single stall, shut the door behind him and sat down on the toilet. “What do you think, can you get me $70 per share for this company?” he said, his voice echoing out from behind the stall door. “Can we get them to pay $70?”

  “There was no bigger seller than A
ugust Busch III,” said one person close to the Anheuser board’s deliberations. “From the first moment, he appeared to be a seller.”

  In fact, The Third had started badgering people over how much InBev might pay as early as the very first board meeting held during the crisis.

  “The secret that never came out was that The Third was a seller from absolutely day one,” said another person close to the company. “I can’t describe it, but from that first board meeting it was obvious that he was a seller. And to some extent, it was obvious that some directors and The Fourth were going to play the role of devil’s advocate. Most of the board just wanted to make sure they were good fiduciaries and made the right decision.”

  “I think The Third was a seller from ‘Hello.’ ”

  It’s a revelation that would have shocked Anheuser’s investors, members of the Busch family, and the entire city of St. Louis, had they known at the time. It’s what ultimately drove the nail into the Modelo deal’s coffin and torpedoed Anheuser’s efforts to save itself from foreign control.

  No one in the press or on Wall Street picked up on it, perhaps because the board and its advisors knew their bargaining position would be ruined if The Third’s willingness to sell became public. For all anyone outside the airplane hangar knew, Anheuser’s legendary former chief was still operating in his normal state—stubbornly refusing to consider the deal and doing his best to strike it down.

  Anheuser’s executives had known from the start that he would be the toughest member of their audience that day—he didn’t seem to have much faith in them. Yet some were still blindsided by the strength of his opposition to the Modelo deal. “There were a lot of people on the management team who really viewed The Third as pretty hostile,” said one Anheuser insider. “He was hostile to this stuff all the way through.”

  “He was clearly just looking to ultimately negotiate a deal with InBev. That could reflect, more than anything else, that he didn’t feel comfortable with the management team we had and didn’t have a level of comfort in the management team running the business, implementing our restructuring, and integrating a large acquisition. And when he saw InBev come with cash, he just wanted to get the best deal he could out of InBev and go home with his money.”

  The Third’s eagerness to sell even appeared to affect his relationship with Sandy Warner during the takeover fight’s latter stages. “My impression is that before InBev even appeared, [Warner] had been a proponent for taking over 100 percent of Modelo, from way back,” said one Anheuser advisor. In late June, after several weeks of talks between the parties, Warner had continued to seem open to exploring a deal with Modelo. He knew Modelo well after serving for so long on Anheuser’s board, and knew it was a major contributor to Anheuser-Busch’s results.

  “It would have given us, I think, a very interesting portfolio,” Warner said. “A lot of efficiencies. It was an interesting deal. But very expensive.”

  Warner’s willingness to jump into the Modelo talks appeared to create some distance between him and The Third. “Warner was officially the lead director and liked doing stuff like that. He seemed to enjoy being in the middle of it,” said one advisor. “And I think he was much more of a proponent of the Modelo deal. I’m not sure I ever knew precisely where Whitacre was on the spectrum of things. But what was really clear was that Whitacre was still trusted by The Third. Warner was not trusted by The Third. I think he thought Warner was supporting The Fourth and supporting [his close deputy] Dave Peacock and this concept of doing Modelo, and not selling the company.”

  After The Third wrapped up his barrage of questioning that day, the Modelo matter was opened up to the full board for debate. The tides of the meeting, however, had irrevocably shifted. Once The Third had sufficiently skewered Modelo in front of the entire board, there was no way Anheuser’s exhausted executive team could contain the damage. He held too much sway over the group.

  “It got to the full board, and basically the notion was . . . given the price, given the risks, how could you do [Modelo] without engaging to some degree with the other guys to see what was there?” one advisor said. The meeting devolved into a series of smaller group discussions over what the company should do about InBev, and the Modelo transaction’s momentum evaporated.

  “What do you think InBev could really pay?” the directors quizzed each other, tossing out numbers based on their bankers’ recent presentations. InBev might not have the ability to finance a deal priced at $72 or $75 per share in cash, the bankers had explained, and the notion of taking some of the payment in stock was a non-starter. Still, $70 per share in cash was probably doable if Brito wanted Budweiser badly enough. August III adopted his signature modus operandi and started cornering people one-on-one as the others looked on anxiously, considering what they would say when it was their turn.

  “What’s the number? What’s the number?” The Third asked Tim Ingrassia.

  “What’s what number?” Ingrassia queried.

  “The number. You know, the number. What number can we get?”

  Some of the directors might not have had a particular view going into the meeting on what InBev might pay. After The Third acted as a single-party whip, however, lobbying them as a group and then badgering them one by one, pricing became the main topic of concern.

  “He’s just an oddly charismatic guy,” said one person who was there that day. “He’s a caricature on the one hand, and on the other hand, he’s just got this ability to bend a room to caring about what he thinks and what he says. If it was 13 to 1 for a moment on a straw poll before an official vote, I wouldn’t bet against him if he was the one. He knows how to get things done.”

  With the group’s attention sufficiently redirected toward InBev, Anheuser’s executives and bankers filtered out of the room to allow the board to whittle itself down to its independent directors. August IV, the first board member in line to exit, then stood to offer his point of view.

  His perspective was clear: After all the years Anheuser had spent as a powerless half-owner of its Mexican partner, he favored finally taking control of Modelo. The statement wasn’t overly rousing. Several people in the room were disappointed that The Fourth never made an impassioned pitch for the plan on which his team had worked so hard. “I think some of the board felt that as the process went on on InBev, August IV could have been more assertive,” said Ambassador Jones. “He kind of shrank back from asserting himself on the deal and did not provide some of the leadership that the board expected from him.” Part of the reason for that, Jones mused, may have been “because August III was taking a strong position on some of those issues.”

  After The Fourth stepped out of the room, Stokes tossed in his carefully worded twocents—he had reservations about the Modelo deal but seemed neutral to favorable on the idea. And then he handed the floor to The Third. Now that the time for decision making had come, The Third let up on his full-court press. Leaving the independent directors thinking that his view was overly polarized might actually backfire in his face. So he briefly reiterated why he believed the deal didn’t make sense, and then turned the matter back to the board.

  “When it came time to count noses, he summarized his concerns but was much more diplomatic and basically said, ‘If you folks think this is something we should do, we should do it,’ ” said one person who was in the room. “[I]f you guys think this is what makes the most sense for the company, I’m not going to lay down in the road in front of it.’

  “But he may well have said that fully knowing what was going to come out of the other guys,” this person said—knowing, in other words, that other key board members would vote in favor of reaching out to InBev. “On Saturday and Sunday, he had been laying down in the road in front of it.”

  Whenever The Fourth was ejected from the boardroom, he would slink off into a little anteroom at the hangar that housed the fax machine and printer and start jabbing away on his BlackBerry, like a kid playing with his Game Boy outside his father’s office. At o
ne point during the independent directors’ deliberations, The Fourth turned to the advisors seated next to him.

  “What do you think they’re talking about in there?” he said, only half-joking.

  The Fourth had seemed increasingly dazed and out of sorts over the past few weeks, but his colleagues were nonetheless stunned to hear such a comment coming from the CEO of a major corporation. No one said much then, but several of them recounted the moment later in exasperation.

  “What do you think is going on in there?” one of them said incredulously. “I don’t know. You’re the fucking CEO!”

  August IV’s spacey behavior unnerved some of Anheuser’s executives and advisors, who knew there had never been a more critical time for their CEO to be on the ball. During one board meeting, he leaned over to one of his advisors to ask how the Busch family was going to sustain itself financially if the deal happened.

  “If we sell the company, how are these guys ever going to get their dividends going forward?” he asked.

  “It was like a trick question,” the advisor said. “I said, ‘August, if they sell the company they’ll have cash. They can go decide whatever they want.’ It was just bizarre. People were looking at him like, ‘Where the hell did that question come from?’ ”

  “I used to wonder if August was on drugs in the meeting,” the advisor said, voicing a question that was echoed by several other members of the team. “Because he would just sit there, like, completely out of it. At points, it seemed like he might be falling asleep.

  “The Fourth was slowly falling apart,” said another. “He was in a physical and mental haze for weeks. Pedro’s job was to get him dressed so he could show up for things he had to be at.”