Dethroning the King

by Julie MacIntosh

  Their professional dalliance with St. Louis now over, Anheuser’s advisors gathered up their things and headed out of the hangar toward a large jet that was bound for New York. It wasn’t the last time some of them would set foot in the hangar. While that Sunday marked the announcement of the transaction, there was plenty of work to do in the coming months before the deal could become official.

  The group didn’t make it back to New York as smoothly as usual. Some members of the local St. Louis media had finally uncovered the board’s hiding spot and had come armed with television cameras. Tom Santel had received a message on his BlackBerry during the board meeting that said there was footage on television of him getting out of his car, so he left through a back exit when the session wrapped up. Citigroup’s Jeffrey Schackner wasn’t so lucky—a cameraman shoved a lens in his face as he walked out the door and toward the jet bound for New York. He put his head down and vaulted up the steps into the safety and obscurity of the airplane, but the image ran repeatedly on local television, prompting some of Schackner’s other St. Louis clients to joke that he’d be persona non grata in town for a while.

  “I won’t say that everybody was disappointed,” said one person who attended the board session. “Yeah, there was disappointment that this iconic American company that had been independent for all of these years would no longer be independent. But they all said, ‘We have a fiduciary obligation, the price was fair, and the execution risk was no longer with us but with somebody else.’ ”

  “I just remember getting on that plane and being in this unbelievably pristine hangar, just shaking my head that the thing never needed to have happened,” said another. But “at the end of the day, we’re all businesspeople, and they received a good premium.”

  That premium was enough to significantly enrich members of the board who held a bunch of Anheuser-Busch stock—and August III and Pat Stokes in particular. A good handful of the board—Taylor, Warner, Jones, Loucks, Martinez, Payne, and Roché—held stock that was worth $1.25 million upon completion of the merger. That paled in comparison to the $427.3 million haul August III pulled in, a combination of stock he controlled directly and stock that indirectly benefited him through various trusts and through his wife. Stokes walked away with $160.9 million.

  “It came to a point toward the end where I believe August III and Pat Stokes finally looked at how much money they were personally going to make and said, ‘Let’s do it. It’s over, let’s do it,’ ” said Harry Schuhmacher. “I think August IV still had an emotional tie to the company that he had not overcome yet, and it wasn’t about the money. So he was trying to prevent the deal at any cost. I think I remember August even telling me that ‘Pat and Dad have sold out.’ It became hard for him to really do anything at that point.”

  Anheuser-Busch’s capitulation was particularly frustrating to some of the Wall Street advisors who wanted to win for competitive reasons. They felt the board had pulled the rug out far too soon, leaving InBev’s team able to claim credit for a masterful takeover campaign.

  “The InBev side all throughout this thing had a perspective on what they thought we were doing—what they thought the story was—that couldn’t have been more off,” said one Anheuser advisor. “One of the greatest parts of this story was the disparity between what they assumed was going on and what was really going on. There was this view on the InBev side that somehow they and their bankers had orchestrated this inevitable push towards a deal, and that the sheer weight of the thoughtfulness of their tactics lead to a deal happening. I’ll just tell you, that could not have been further from the truth.”

  InBev’s ability to pull together a slate of alternate board members had “literally nothing to do with it,” the advisor said. The board’s decision came down to its view of the company’s alternatives. Instead of taking more risk than necessary, whether by throwing their weight behind The Fourth or by trying to execute a deal with the Mexicans, they opted for the lowest-risk option.

  “They were just incredibly, incredibly conservative in doing that,” the advisor said. “It was nothing so much about any great tactics of InBev. There was nothing about their alternative board that did anything. No one was so intimidated by that at all. There was nothing about what Adolphus Busch did that mattered. This was very much just, ‘What’s the number they’re putting up, what’s the value we can do on our own, and do we feel like taking any risk at all to get there?’ And the board saying ‘No, we don’t want to.’ ”

  Once they had all piled on the plane, the group of New York- bound advisors settled into their seats for the flight back, deflated, hungry, and—with the company’s fate sealed—eager to get home to bed. Some toasted the bitter occasion by finally cracking open a few free beers. They had no clue that Brito and the rest of InBev’s team were doing the very same thing in a document-strewn conference room in New York, though in far more celebratory style.

  Joe Flom, who seemed to have been itching for battle from the start, hadn’t cooled off and began pacing like a caged tiger. “He was just running up and down the aisle of the plane,” said one person who was on the flight. Out of Anheuser’s entire pool of advisers, Flom was “probably the most disappointed that they didn’t want to go to war,” said another member of the group. It was Flom who had argued earlier that week that they should call attention to InBev’s relationships in Cuba, where U.S. companies were mostly barred from doing business, in an effort to cast a pro-American shadow on InBev’s operations. Anheuser had taken his advice and issued a statement that chided InBev for not explaining how its distribution partnership with Cuba’s government would impact Anheuser’s customers. The effort went over like a lead balloon. It was too little, too late, and too desperate. Many media outlets neglected to even note the Cuba angle in that day’s news coverage. For a hostile takeover with such significant implications, that small shot across InBev’s bow was as messy as the PR battle between Anheuser-Busch and InBev ever got. And to Flom, it seemed to be a disappointment.

  “I remember sitting next to Joe on several of these flights, and I remember him being pretty upset, thinking that we could have fought more, we could have gotten more, and that we had been quick to take a bid,” said one Anheuser-Busch advisor. “I think that Joe passionately cares about this stuff.”

  “He clearly was upset by some of these things, because he felt the board had moved quicker than he wanted it to.”

  Eventually, though, Flom’s pragmatism won out. He and Larry Rand shared a car back home that night after their plane landed in New Jersey, and by that point, he had turned his preternaturally energetic attentions toward the future—he was planning an elopement in Europe.

  “While all this is going on, he meets and marries a girlfriend based, I think, on a blind date,” said one person on Anheuser’s team. “That’s impressive.”

  “When you’re my age, you can’t waste time,” Flom liked to say as he told the story.

  On another Anheuser-Busch jet that evening, this one bound for Washington, D.C., Jim Forese, Ambassador Jones, and General Shelton commiserated as well. They had boarded the plane in St. Louis with an emptiness in their guts and weren’t particularly eager to drink, though Shelton wouldn’t have tipped one back even if the mood had been sunny. He never imbibed while flying—private or commercial—to keep his senses sharp in case something went wrong. It was a habit he picked up in the Army’s airborne special operations.

  Anheuser-Busch was a global icon, and the last major beer maker in the country that was still American-owned. “When you look at A-B and Harley-Davidson, and Ford Motor Company, these are companies that represent America,” Shelton said. Anheuser’s era as a member of that dwindling club had ended in the blink of an eye, and the trio’s sense of loss was overwhelming. “It was almost like ‘This can’t be happening, ’ ” he said.

  Feelings of self-doubt nagged at Ambassador Jones the entire flight back. “Could I have done something else?” he thought. “Could we have prevented this?”
It was hard not to second-guess the board’s decisions. Those pangs never really subsided, even after wild gyrations in the market in the months that followed made the board’s timing look brilliant.

  “We had some opportunities to buy some quality companies in Europe and we didn’t—this was when August III was CEO—because he thought they were overpriced. And in the presentations that were made, it sounded like they were overpriced,” Jones said. “So we may have missed some good opportunities overseas. That might have made a difference. That might have made us somewhat invulnerable.”

  “If I had to put my finger on any one thing, I would say we probably were too conservative,” agreed Shelton, who found himself wishing there had been someone on Anheuser’s board who would have pushed harder to do deals. “When you live in a world of either ‘buy’ or ‘be bought,’ you’ve got to be growing faster than we were growing externally. We should probably have been more aggressive in pursuing other opportunities.”

  “When you watch a company like Molson buy Coors, and SAB buys Miller, in the back of your mind you think, ‘If we had been willing to maybe accept a little lower credit rating and been less risk-averse, would we not have fared a lot better in the long term?’ ”

  Not a single move was made to pay tribute to what had just happened before the directors walked to their jets that evening—not one speech in honor of what Anheuser-Busch had accomplished over the past century and a half, not one note of formality to mark the end of an era. Anheuser-Busch wheezed its final breaths in the fluorescent-lit makeshift conference room of a St. Louis airplane hangar. It was a far cry from the rich, evocative imagery the company had always projected.

  “That was it,” Shelton said. “We got on the plane and flew back and it was all over.”

  Back in New York, InBev’s core handful of executives, bankers, and lawyers prepped for what they hoped would be the biggest day of their professional lives. There was still a great deal of work to be done—legal disclosures that needed to be reviewed, press materials that needed to be vetted. It was hard to concentrate. They were waiting anxiously for a call from Anheuser to confirm that its board had approved the deal. If that call never came, their efforts would be pointless.

  As the summer sun set that evening, the team grew nervous. Anheuser-Busch’s board was bound to take an hour or two to fully vet and approve the deal. As two hours stretched into two and a half and then three, still with no phone call, the tension on Park Avenue intensified. Anheuser’s board wouldn’t dare hang InBev out to dry after wading this deeply into merger talks, would they? Up until that Sunday, the deal had progressed at a shockingly rapid-fire pace. Were they suddenly getting cold feet? Did they want more money? Were the Mexicans back in town? With Anheuser’s whole team now in St. Louis, InBev could no longer cajole them into submission face-to-face.

  Everyone in the room seemed on edge. This takeover bid was about to make or break each of their careers. They put their heads down and concentrated on the piles of antitrust filings and press materials in front of them. Brito, in particular, refused to loosen up. As he repeatedly made clear, the deal wasn’t done until he got word from Anheuser-Busch firsthand. He wasn’t the type to celebrate prematurely.

  At around nine or ten o’clock that night, Brito’s cell phone sprang to life. He put up his hand to quiet his colleagues and answered the phone.

  August IV’s lilting drawl came through from St. Louis on the other end of the line. His board had capitulated, he told Brito wearily. Anheuser-Busch was InBev’s for the taking. Brito’s dark eyes lit up as he disconnected the call, and the InBev team devolved into a round of whoops and back-slapping hugs. A few moments later, they gathered around a table where a round of Budweisers had been laid out on ice a few hours earlier in anticipation, next to some of the Stellas and Beck’s they usually imbibed.

  “Nobody touched the Bud until Brito had gotten a call from The Fourth,” said one person who was there that night. Once that call finally came in, though, InBev’s team cracked open the King of Beers for a toast, pulling out their cameras to document the moment as they knocked the drinks back with the exhilaration that comes with a hard-fought victory.

  “There aren’t that many deals where you literally get to drink their products in toast when you win it,” said one person close to InBev.

  It took an extra handful of hours to finalize the merger agreement once Anheuser’s approval came in, which proved excruciating for both sides. InBev’s camp couldn’t wait to publicly declare victory, and the exhausted Anheuser-Busch team was ready to reclaim their lives. Anheuser-Busch had pulled many of its legal documents together in just 48 hours, so the delay was not surprising. It was like watching paint dry, a frustrating lull before a hugely anticipated moment.

  As Skaddden combed through the merger agreement one last time, and as InBev pored over the reams of documents Anheuser-Busch had hastily submitted over the past two days, Brito took up residence in a separate room to be briefed for the following day’s press conference. Mid-evening melded into late night and then early morning on Monday, the day InBev had hoped to announce its coup before markets opened in Europe. Some of the lawyers had been onsite on Park Avenue by that point for nearly two straight days, and many hadn’t caught a wink of sleep. A few had holed up for catnaps in dark nooks and crannies, spread across or beneath rows of chairs.

  “You’d sort of walk into a conference room, the lights would be out, you put the lights on, and there would be somebody sleeping in the corner,” said one InBev team member.

  Then, to InBev’s great relief, Skadden finally announced that it was comfortable enough to let InBev issue its press release. Brunswick’s Steve Lipin, who had repeatedly reviewed each line of the release to make sure everything was in order, conducted one last run-through with InBev’s top two PR staffers. They were just about to press the button to send it to the news wires when they realized that while the document was still dated Sunday, July 13, the clock had already flipped over to Monday in New York and Belgium. For a few seconds, yet another administrative obstacle looked like it would delay InBev’s moment of glory.

  “It’s still Sunday in St. Louis!” someone suddenly blurted out. The team digested the statement for a few seconds and then nodded in agreement, breathing a huge sigh of relief. They made sure that their press release included a Sunday dateline from St. Louis. And with that, they pushed the button.

  Chapter 17

  Cash Out or Hunker Down

  Everyone is a multimillionaire in the top management. I can assure you they were not unhappy, let’s put it that way. I don’t know that I hear too many complaints from them.

  —Anheuser-Busch board member Jim Forese

  On Tuesday morning, after giving the news of Anheuser-Busch’s capitulation a day to sink in, the victorious Brito arrived at headquarters in St. Louis to address the troops. InBev had held a global conference call on Monday to coincide with the announcement of the merger, and Brito spent more than an hour waxing poetic about the future and detailing his plans. That public showing, however, had been tailored for the media, analysts, and investors on Wall Street. He needed to keep Anheuser’s engine fires burning by engaging staffers in St. Louis, and he felt that showing up in person would help.

  InBev was hoping The Fourth would pitch in to keep his employees ’ despair at bay, but his performance on the Monday call had suggested he was too distraught himself to be useful. When Brito turned the podium over to Anheuser’s executives to see whether they had something to add, The Fourth remained completely silent, leaving Dave Peacock to fill the void with a few quick comments. August IV had prepared a series of remarks to make to his employees that day in St. Louis, but they were so dour that InBev’s PR team edited them to inject them with some optimism. It was hard to blame The Fourth. He was being forced to act as the public face of a takeover he didn’t support.

  To honor Brito’s visit and pay him the respect it felt he deserved as the soon-to-be new chief, Anheuser-Busch ar
ranged for him to stay in a suite at the cushy Ritz-Carlton. The Ritz wasn’t Brito’s style, though, especially since he was just about to start indoctrinating Anheuser-Busch’s staffers to InBev’s frugal way of life. He had flown commercial into St. Louis from New York’s LaGuardia Airport.

  “He had someone call back and say, “No, no no, I’ve already reserved a room at such and such a place—like the Holiday Inn,” said one InBev insider. “I think that’s when it probably, for the first time, hit home in St. Louis that things were going to be different.” Rather than hitching a town car or helicoptering in to Anheuser-Busch headquarters from his hotel on Tuesday morning, Brito accepted a ride from Dave Peacock.

  Brito had been to St. Louis before. His first big business trip early in his brewing career had been a visit to Anheuser-Busch, where he learned about how the legendary American giant brewed and distributed beer. The coin had certainly flipped. He was now about to instruct Anheuser’s staffers on how he did business at InBev as their new boss.

  When Brito sat down in Anheuser’s ninth floor boardroom with the strategy committee that day, most of the committee’s members were still digesting the fact that they had become obsolete overnight. It was surreal.

  “It all happened so quick,” said Tom Santel. “It was only, like, 51 days. We thought it would last a lot longer.”

  “I don’t think that early on, people really understood whether this thing was going to really happen,” another strategy committee member said. “There was to a certain extent some denial that this was really true. Up until the day that the board agreed to sell, there was a lot of hope—anxious hope—‘We’re going to fight these bastards, ’ blah, blah, blah.”

  In an awkward presentation that elicited a few polite questions, Brito pledged to the strategy committee that InBev and Anheuser would do great things together and take the global beer market to a new level. His comments seemed highly scripted, but they helped convince at least a few staffers that he wasn’t the devil incarnate.