Once Stokes and The Third had exited the boardroom, Joe Flom took the floor and made it clear to the independent directors that he was up for a fight if they wanted one. He didn’t push them in one direction or another, but he said they had the legal flexibility to turn InBev down if they wanted to. “He talked about their fiduciary duty,” said one person in attendance. “They didn’t have any duty to sell the company, there was this other terrific transaction out there, and yeah, it might get attacked, but there were good reasons that would uphold the action.”
“It was like the last stand—we’ll get them on the beaches.”
The board felt that Anheuser-Busch’s standalone plans could beat InBev’s $65 a share offer, especially if Modelo was added in on top. They were uneasy, however, about hopping into bed with the Mexicans in the wake of The Third’s performance that day. After letting the debate run on for a while, the oracle-like Whitacre finally interjected to offer his perspective.
“I just don’t understand how we do this other transaction, with all of the risks entailed in it, without having some communication with the guys who put a very big bid on the table to see if they won’t do better,” he told the board. “Then we can decide what to do.”
It was tough to argue with that logic, even for anyone who might have wanted to. If Modelo were offering itself at a bargain price for a limited time, things might have been different. However, Modelo’s demands kept rising. How could the board explain its decision to shareholders without at least asking InBev for a higher bid? It would seem blindly irresponsible.
Some members of the board worried that they might lose Modelo altogether if they reached out to InBev. The Mexicans and their advisors were bound to be furious. Still, they decided, business was business, and their job was to get the best deal possible for Anheuser’s shareholders. To lessen the affront to Modelo, they could keep InBev on a short leash by requiring them to come back quickly with a response.
With a unanimous show of hands, the directors agreed that Anheuser’s best choice was to ask InBev to raise its bid. They needed to see the Brazilians’ best and final offer in order to make the right decision, which meant there was no choice but to break the silence.
Just one question remained: Who should make the overture? Such a critical phone call, after weeks of stonewalling, would require a deft approach. Anheuser needed to carefully open a dialogue with its now-bitter rival and extract a higher bid using the threat of an alternative deal as leverage. If Anheuser overplayed or underplayed its hand, either by inflating the Modelo transaction’s prospects or by revealing that the board was wary about it, InBev might not take the bait. “I won’t accept a dime less than $70,” Ambassador Jones told the group, voicing a sentiment some other board members shared as well. But at $65 per share, InBev’s current offer wasn’t even that bad, given how poorly Anheuser’s shares had been trading.
August IV was the obvious candidate for the job. The board had serious misgivings, however, about whether he should handle such a sensitive task. His trip to meet with InBev’s executives in Florida had created more ambiguity than it had cleared up. It would be inappropriate to crack open the vault and call upon August III to help, and dipping a step beneath August IV in the ranks to recruit a second-tier executive would also look strange, especially since most of those executives favored the Modelo deal. So the board turned inward and ruled that Warner and Whitacre should team up with The Fourth to make the call.
“It was the three of them for adult supervision,” said one Anheuser advisor. “There was no way anyone would trust him.”
With the board now settled on a course of action, it came time to summon their CEO. A member of the group ducked outside the room, motioned to the secretary who was standing guard in the hallway, and asked her to find August IV to request that he return to the boardroom. When he strode in a few moments later, Warner debriefed him in front of the group.
The news must have been hard to swallow. The Fourth had labored for three weeks straight to secure the Modelo deal and save the company, and he was now being flatly overruled by his own board. He had never held much sway with the directors, but this was a punch in the gut—especially since his own father had helped steer the board’s decision.
Still, August IV held himself high. “Once the evaluations were all done, I don’t know that he had any big disagreement with it,” said Jim Forese. “He was actually quite professional about it,” said another person who was in the room. “And he was certainly, in those dealings from then on, quite professional. I don’t think he was shocked.”
He was distracted enough, however, to neglect relaying the board’s decision to the rest of his team. The company’s bankers and executives had all been sitting in a separate area of the hangar, expecting that someone would come out to issue some type of pronouncement and perhaps bring them back into the boardroom to discuss matters further with the entire cast. Instead, they looked up and saw The Fourth’s helicopter firing up its rotor blades. A moment later, one of the Anheuser-Busch jets started taxiing away from the hangar toward the airport’s runway.
They exchanged puzzled looks, wondering whether the board’s executive session had adjourned, what had been decided, and whether the departing plane was a New York-bound flight that was leaving some of them stranded in St. Louis. It was strange that no one had filled the bankers in, but even more disturbing that Anheuser’s anxious executives had been left in the lurch. The board’s unceremonious dissolution suggested that Modelo was definitely not a “go,” since the clueless people in the room were the ones who had been managing those talks.
“The fact that the whole management team wasn’t brought back in is a little bit of how they treat people,” said one advisor.
Once most of the directors had disappeared, Sandy Warner finally summoned the group back into the boardroom, where he sat them down and announced that they had decided to contact InBev to request a higher offer by Wednesday.
“These are serious people, and they’ve offered a serious price,” he said, as board chairman Pat Stokes stood off to one side. “Let’s see what the best we can get out of them is. We’re going to go back to them and see if we can get more.”
By then, the news wasn’t a complete surprise. Everyone had just witnessed The Third’s vocal opposition to the Modelo deal an hour or two earlier. It left them shell-shocked to hear that the three sleepless weeks they had just spent on Modelo were being dragged out further so that the board could dip its toes in InBev’s waters at the last minute.
Tom Santel, after spearheading the entire effort, was particularly taken aback. “I was shocked at that—that they were going to check with InBev first,” he said. “It just seemed, really, an odd thing to do, to check with an outside party before you did something.”
“We were trying to save the company,” he said. “We thought we had a very attractive means to keep our company independent, to grow it with an attractive deal and to really create an exciting future for ourselves and get the one deal we thought we’d never be able to get. There was a lot of disappointment.”
At Warner’s request, the bankers in the room huddled before boarding their jet back to New York to write a script that would help guide the conversation he, Whitacre, and August IV would soon have with InBev.
Anheuser’s team of dejected executives, meanwhile, trudged out to their cars and agreed to meet up at the Fox and Hound, a chain sports bar just outside the airport, to drown their sorrows. They were driving home, which kept them from commiserating too fully. After working like dogs to push the Modelo deal to the brink of an announcement—with press releases and conference calls ready to go—they realized they had no choice now but to mentally switch gears. It seemed appropriate to quaff a couple of overpriced Bud Lights after such a demoralizing day. The following morning, Tom Santel switched off all of his electronic gadgets—a deeply symbolic move for someone so tethered to the office—and hopped on his road bike for a long, contemplative ride out into th
e St. Louis suburbs.
That Monday marked a critical pivot point. Some Anheuser staffers and advisors had walked into the day’s meeting expecting that the board would endorse a bid for Modelo by the time it adjourned. Instead, the board issued a sobering set of instructions and agreed to reconvene two days later to weigh the results. August IV would contact InBev to request its best and final offer. And he would have emotional and legal backing from the two men InBev had secretly targeted as its likeliest allies.
Modelo’s entire team—from Carlos, María, and the other family members on down to their bankers, lawyers, and hired PR guns—waited in suspense that Monday, anticipating that at any moment they would receive a phone call that would change their lives. It never came.
Instead, Anheuser’s board told Goldman to raise some modest clean-up issues with Modelo to help stall the process, under the guise that a deal was still happening. “It was ‘Go tighten up a few of these things that need to be tightened up with Modelo that the board wanted a little bit more clarity on,” said one person involved in the matter. “But in truth, it was mostly going to Modelo and saying, “Modelo, sit still for a week. The board will make a real decision next week.”
Fearing that their client would end up as the odd man out, Mercado and Kindler had already scheduled a meeting with InBev’s advisors for the following day at Lazard’s offices at 30 Rockefeller Plaza, the Manhattan skyscraper that houses the NBC studios and the famous Rainbow Room restaurant. They had a fully negotiated deal with Anheuser-Busch—the documents were ready to be signed. After getting stood up the day before, though, they wanted to nail down a treaty with InBev in case the Anheuser deal lost traction altogether. InBev, for its part, wanted to keep Modelo from striking that deal. Antonio Weiss and the rest of InBev’s team didn’t know that Anheuser and Modelo had come within inches of a merger, but they knew the talks were still on.
The two sides sat down in a conference room that morning at 8 A.M. and began diligently chipping away until an assistant ducked in to tell Weiss he had an urgent phone call—something that was important enough to pull him out of the discussion for a few minutes. The Modelo’s team’s minds started racing as they watched Weiss walk out.
“We’re sitting there thinking, ‘You know what? We’ll see what happens with A-B. We have the agreements ready to go,” said one person close to Modelo. “But we’re not leaving this room either, because if it doesn’t happen, we want to get our agreements done with InBev.” Weiss eventually returned, and by the time Modelo’s team left that afternoon, they had negotiated for five hours.
It was already too late. As Fernández, Kindler, and Mercado swung out through the revolving door exits of marble-laden Rockefeller Center, where cell phone service is spotty, they connected with Goldman and received word that Anheuser’s board had just asked InBev for a higher offer.
“We literally knew that it was over,” said one person close to Modelo. “There was zero chance our deal was happening once they told InBev, ‘Give us your last bid, because we’re going to do something else.’ ”
Kindler turned to Carlos Fernández, shook his head, and said, “Let’s just all go home.”
The fact that Anheuser-Busch’s board was stalling in order to talk to InBev didn’t escape Don Antonino and the rest of Modelo’s controlling family members. Don Antonino was nearing the end of his rope and threatening to pull his support altogether.
It put Carlos in a precarious spot—he was trying to bridge the gap between Modelo and Anheuser-Busch, but the space between the two companies was growing wider by the hour, and he could only stretch so far. If Anheuser-Busch didn’t press “go” soon, it was going to lose Modelo altogether.
Sandy Warner, sensing Carlos’s predicament, called his former colleague to confirm that the board was indeed reaching out to InBev. He offered a few words of support to Carlos, who sensed that Warner was still open to a deal.
“Hang in there, Carlos,” Warner said. “We’ll be back.”
Chapter 14
Put Up or Shut Up
The story here is that Anheuser-Busch really played the game fairly well. Everybody assumes they got rolled. They didn’t. They played the game well by making enough noise to force Brito to go beyond his comfort zone.
—Anheuser-Busch advisor
InBev’s executives and advisors woke up on the morning of Tuesday, July 8, to find that the tectonic plates underlying their takeover attempt had shifted overnight.
Before leaving the office the evening before, they set the agenda for a strategy meeting that had been scheduled for the following morning at Lazard. That evening, August IV sent an e-mail to Jorge Paulo Lemann saying that Anheuser—for the first time since the takeover saga began—wanted to talk. It was the overture InBev had been hoping for, and it came less than a day after InBev publicly released its slate of nominees. Their attack must have hit the Anheuser board of directors right in the jugular, the InBev team deduced with a sufficient dose of pride, just before realizing that their agenda for the morning meeting was now moot.
InBev wasn’t shocked that Anheuser was reaching out, but they were surprised it was happening so quickly. They had expected their American rival to stall for a few more weeks. InBev’s top coterie of executives and advisors brought with them a palpable level of excitement when they assembled at Rockefeller Plaza that morning. “People thought, ‘This may finally be the breakthrough,’” said one InBev insider. “Because obviously, we knew we had come out with a blockbuster slate the day before. We were pretty proud of ourselves.”
Brito, as usual, was reluctant to read too much into Anheuser’s outreach effort. He wanted to be sure it was an olive branch, not a riding crop. “People were optimistic and hopeful, but at that point, all we knew was they wanted to have a phone call,” said a person close to InBev. “We didn’t know whether it was a phone call to tell us, ‘We’re merging with Coca-Cola’ or ‘We have a deal to go private.’” Anheuser-Busch could just be looking to cover its bases before heading off in a completely different direction.
After a brief discussion over how to react to the overture, the Brazilians responded to August IV with an e-mail of their own. The two companies quickly agreed to hold a telephone call just a few hours later, with three designated representatives on the line from each side. Squaring off against Anheuser-Busch’s Whitacre, Warner, and August IV—all three, businessmen who had led emblematic American companies—would be a triumvirate of Brazilians: Lemann, Brito, and Telles. The call was bound to be the takeover fight’s most critical moment so far, no matter what Anheuser planned to say. And InBev was eager to listen.
August IV, Whitacre, and Warner each dialed in that day from separate locations. August IV broke the ice with a few words as the call began, but Warner and Whitacre took over once The Fourth hit the most critical points in the script they had agreed to use. “The board picked us to do it because Ed had done a lot of it in one capacity at AT&T, I’d done a lot of it as a banker, and August had never done any of it,” Sandy Warner said. “We just brought different perspectives to it, and we brought those perspectives to the call.”
The two elder board members got to the point quickly. Anheuser-Busch was close to pursuing a different option, Warner said, and a critical board meeting was scheduled for late in the day on Wednesday. If InBev was still interested in owning Budweiser, the board wanted its best and final offer on the table by the time that meeting started. And they wanted more than just hard cash. They wanted assurances that any deal InBev proposed had a high likelihood of closing. If Anheuser’s board didn’t hear from InBev by then, he said, it would assume InBev was sticking with its bid of $65 a share. And at that price, Anheuser could easily justify opting for another transaction instead.
“Before we do any of that, and this disintegrates into a very negative contest, you may want to go back and consider whether $65 a share is your best and final offer,” Warner said. “If you get back to us within the time frame we’ve given you, we’ll
get back to you promptly with an answer.”
Reports of Anheuser’s talks with Modelo were all over the newspapers, but Whitacre, Warner, and The Fourth refused to reveal any details about Anheuser’s second option. “We decided that if they wanted to go to bed thinking that we were doing a merger of equals with SABMiller, God bless them, and if they wanted to go to bed thinking we were doing a recap (which would have loaded the company with debt), God bless them,” said one person close to Anheuser-Busch. “We weren’t going to tell them point-blank what was going on.”
Anheuser’s threat of a “Plan B” mildly unnerved InBev, but it wasn’t particularly convincing. “While it was something they were thinking about, I got the sense that this was something maybe their advisors or management had come up with, but not something that these two guys really wanted to do,” said one InBev insider. “They basically told us, ‘You misread everything. We never said we wouldn’t sell the company. You misunderstood our rejection on the 26th—this is really escalating and becoming hostile, and it doesn’t need to be. We’re going to do the right thing by the shareholders. We need your best and final.”
Before Tuesday’s call had started, the Brazilians had agreed that if Anheuser-Busch made any sort of overture toward a deal, they would try to steer the matter toward their bankers rather than delving into specifics over the phone. “What they were going to do is say, ‘Well, why don’t we have our bankers get together, and maybe you can show us that there is more value. We want to understand this exactly,’ ” said one person close to the matter.
That’s precisely what they did. And as word spread in InBev’s camp that the two sides had talked, moods lifted significantly. “People started to think, ‘This thing is really going to happen,’ ” one insider said.
Dethroning the King Page 32