Brahma buys rival brewer Antarctica and creates Ambev.
1999
2003
Lemann, Telles and Sicupira sell part of their shares in GP Investimentos to a new generation of partners, led by Antonio Bonchristiano and Fersen Lambranho. The three businessmen would sell their remaining equity stake the following year and leave the business entirely.
Interbrew of Belgium buys Ambev, creating InBev. Under the deal Lemann, Telles and Sicupira become shareholders in the new brewer. They later increase their equity stake in InBev and become the biggest individual shareholders.
2004
The three entrepreneurs start 3G, a fund aimed at investing in American companies. Alexandre Behring is chosen to run it.
Americanas.com, the retail electronic arm of Lojas Americanas, buys Submarino, founded by GP Investimentos in 1999.
2006
2008
InBev buys American brewer Anheuser-Busch, producer of Budweiser, for US$52 billion. The new company, called AB InBev, is the world’s biggest brewer. Carlos Brito becomes CEO.
3G buys global control of American fast food chain Burger King for US$4 billion.
2010
2013
3G announces purchase of American food manufacturer Heinz for US$ 28 billion. Warren Buffett is the Brazilians’ partner in the deal.
The “invaders”
of Anheuser-Busch
Brazilian businessman Jorge Paulo Lemann was traveling in the Gobi desert at the end of May 2008 when his Blackberry started ringing non-stop. He was on holiday in Asia with his wife, Susanna, and a couple of friends – former Brazilian president Fernando Henrique Cardoso and his wife, Ruth. They were anxious to see one of the world’s largest deserts, located in northern China and southern Mongolia with its rugged mountain ranges, gravel-strewn plains and constantly shifting dunes. The temperatures are extreme, rising above 40oC in summer and plunging to -40oC in winter. Although Lemann did not neglect the touring agenda, his cell phone was always by his side. The situation was urgent. Some months earlier, he and his partners, Marcel Hermann Telles and Carlos Alberto Sicupira, the controlling shareholders and members of the board of directors of the Belgian-Brazilian brewer InBev (owner of Ambev) had been drawing up a plan to acquire Anheuser-Busch (AB), which made the world’s best-selling beer, Budweiser.
Banks, lawyers and a small group of InBev executives had been working in absolute secrecy on the Amsterdam Project, as the plan had been dubbed. The acquisition would transform the company that resulted from the merger of InBev and AB into one of the world’s four largest consumer groups, behind giants like Procter & Gamble, Coca-Cola and Nestlé. Acquiring such a symbol of American capitalism would not only be the biggest deal the three cariocas, as natives of Rio de Janeiro are called, had ever made, but turn them into the most powerful Brazilian businessmen ever, and with the greatest global reach.
Everything had looked under control until their secret was leaked to the whole world at 2:29 P.M. on May 23 in the Financial Times Alphaville blog, which published an item stating that InBev was preparing an offer worth US$46 billion for the long-established brewer. The item gave details of the financing model to buy the company, the names of those involved in structuring the deal, and when the first approach had been made to August Busch IV, AB’s CEO and a member of the family that gave the company its name. Even though he was “lost” in the middle of the largest desert in Asia, ignoring a leak that could jeopardize the whole plan was simply not an option for Lemann.
“He remained calm throughout the whole trip to China and sorted everything out by mobile phone in a very objective way,” said Cardoso. The former president said he had become friends with Lemann after leaving the presidency. This was the first tourist trip they had made together.
Between camel rides and orchestrating the most ambitious business deal of his life, Lemann actively avoided replying to one single e-mail. That was from Busch IV, who had been astonished to read on the Internet that he ran the risk of losing the company founded by his family and was writing to Lemann to demand an explanation. Lemann needed to think of the best way to tell Busch IV that InBev did intend getting hold of his company, a conversation he knew would not be easy. It was better to wait than say anything.
The move by the Brazilian threesome may have taken Anheuser-Busch, analysts, investors and journalists throughout the world by surprise, but it was the kind of move Lemann, Telles and Sicupira had been dreaming about since 1989 when they bought control of the Rio-based brewer. At that time, they knew absolutely nothing about the beer sector. Their fortunes had been created through an investment bank called Garantia, which Lemann had founded in 1971. This bank made history by emphasizing meritocracy (remunerating and promoting employees purely on their performance without considering factors such as how long they had been in-house) and partnership (giving the top performers the chance to become partners in the firm), concepts that had never been heard about in Brazil. Telles and Sicupira, known as Beto, both came from middle-class backgrounds in Rio and personified this approach. Lemann had hired them both in Garantia’s first years and they had moved up the ladder until they became his main partners.
Sicupira left the bank’s daily operations at the start of the 1980s to take charge of Lojas Americanas, a retail chain Garantia had just bought. No Brazilian investment bank had ever bought a company to take over its management until that time. Telles later followed a similar path and gave up the financial market to take on the challenge of transforming a faltering brewer into a company with international standards. Brahma, which Telles acquired, was only a tiny fraction of the size of Anheuser-Busch, which was the world’s largest beer producer at that time. “I used to laugh and tell people within the company that we would buy Anheuser-Busch one day… I laughed so that people would not think I was crazy… Although it was a dream, there was a chance of achieving it by feeling your way forward,” Telles once said.
The road to making the bid for AB was long. Its main steps included the purchase of the São Paulo brewer Antarctica to create Ambev in 1999 and the agreement with InBev of Belgium in 2004. In 2008, almost two decades after buying Brahma, Lehmann, Telles and Sicupira were finally poised to swallow up the giant Anheuser-Busch and no leaked news story would stop them from going ahead.
The silence from his likely executioners left Busch IV, known as “the Fourth,” disconcerted. He and his team wondered whether this band of Brazilians would really have the guts to seize an American symbol. However, the truth was that, despite its tradition and size, Anheuser-Busch had lost its former sparkle. The company had been founded by a group of German immigrants in 1852 in St. Louis on the banks of the Mississippi and was originally called the Bavarian Brewery. Eight years later, it was bought by Eberhard Anheuser, a local businessman who had made money from a soap factory. The brewer started to take off with the arrival of his son-in-law, Adolphus Busch, who launched the Budweiser brand in 1876. He then bought 50% of his father-in-law’s stake and renamed the company Anheuser-Busch. It had remained a family-owned concern until then, with the command handed down from generation to generation. Every member of the family was introduced to the brewer, literally, in the cradle. The male heirs of the clan were traditionally given five drops of Budweiser a few hours after they were born.
This formula worked well for many decades. By the end of the last century, AB dominated 60% of the American market and had the biggest revenues in its sector. However, as often happens with such large corporations, the peak was followed by a decline. The company concentrated its business in the United States and squandered the chance to go international while its rivals, like InBev, were expanding worldwide. AB’s earnings stagnated. To make things worse, its heirs and executives continued to lead the life they had grown used to, lavished with perks, as the American journalist, Julie MacIntosh, relates in her book Dethroning the King – The Hostile Takeover of Anheuser-Busch. The Busches and the company’s directors had a fleet of planes at their
beck and call – “Air Bud” – with six private planes and two helicopters, which employed 20 pilots. Those who could not get a seat on the company planes were entitled to fly first class. Accommodation was always in five-star hotels, like the Pierre in New York, and the tab for normal business meals approached US$ 1,000.
Anheuser-Busch was like a doting mother who let her spoiled children buy anything they wanted, including unusual “toys” like the Busch Gardens and Sea World amusement parks in Florida. Just what a brewer had in common with roller coasters and trained dolphins is hard to say, but this did not seem to be any problem for the AB bosses.
There was not the slightest possibility of vanity acquisitions like this being made at InBev, where high costs were regarded as a sin. Executives flew coach class and stayed in three-star hotels, sometimes even sharing the same room. Meals in restaurants were modest affairs, washed down with a beer, at most. These were two opposite worlds that were about to collide.
The InBev executives were well aware of these differences. At the end of 2006, they had made a deal to allow Anheuser-Busch to become Inbev’s official importer in the US. The agreement gave the Americans access to famous global brands like Stella Artois and Beck’s that could help pull it out of the lethargy into which it had slumped. The deal was even better for InBev which gained a commercial partner in the US and could see at close hand how it operated. Busch IV, a former playboy who had recently taken charge and only rarely appeared at the head office, did not realize the danger he was running, and opened the door to the InBev CEO, Carlos Brito.
Brito was born in 1960 and studied for an MBA at Stanford, thanks to a grant from Lemann. He was one of four Garantia employees who ended up in Brahma when the bank bought the brewer. In the decade he had known Lemann and his partners, Brito had absorbed all the trio’s concepts and become the embodiment of the culture they preached, someone who was absolutely obsessed with cutting costs and devoted to meritocracy. He shunned interviews and the limelight and led a quiet life with his wife and four children. He was the opposite of Busch IV and it was precisely for this reason that he took advantage of every inch of the opening Busch provided after the distribution deal. Brito saw ostentation and investments for himself that made no sense. He also analyzed the power relationships. Although the Busches still had their name stamped on the company, the clan held only 4% of AB stock, a smaller stake than mega-investor Warren Buffet, for example. All this would serve as ammunition in the creation of a strategy to conquer the maker of Budweiser, a brand that was so symbolic for Americans that Brito once described it as, “America in a bottle.”
While Lemann remained silent, Busch IV resolved to take action. He summoned the board of directors for a meeting with bankers Goldman Sachs, his long-standing advisers, on May 29 – six days after the news had leaked on the FT blog. This meeting also included lawyers from Skaden, Arps, Slate, Meagher & Flom, and AB would also shortly hire Citibank. The Fourth wanted to know whether InBev could really put together a loan of US$ 46 billion at a time when the financial market was showing signs of trouble. For example, Bear Sterns had just been rescued under pressure by JP Morgan. The group also needed to know how to proceed if the takeover proposal materialized.
By that time, Lemann had replied to Busch’s e-mail, although only to state tersely that he would be out of touch for a few days as he was traveling in the Gobi desert. He added that he felt it would be a good idea for them to meet.
This meeting was arranged for June 2 in Tampa, Florida. Lemann asked Busch to come unaccompanied by any advisers or consultants. Lemann would also be alone – well, almost alone. Telles would be with him. Although Busch, an heir who did not know his company well, would be facing two experienced businessmen and former bankers, he rashly agreed to this proposal.
Busch was nervous, and wanted to know if an offer would be made and for how much. Despite the fact that they were on the verge of the biggest deal of their lives, Lemann and Telles showed no pressure, maintaining their calm demeanor and the poker faces they had perfected during their years on the financial market. They said only that InBev was certainly interested in buying AB, but refrained from offering any details. In some ways it was the opposite of what had occurred a year earlier when Lemann suggested during an informal meeting with Busch that the two companies should merge. He argued at that time that the two companies would be unbeatable if they were united. Busch did not get the message – or pretended he did not get it.
InBev formalized its offer on June 11, only nine days after the Tampa meeting. Brito phoned Busch from Brussels and told him he would be sending an immediate proposal to buy AB. InBev was offering US$ 65 a share (a premium of 18% on the stock’s highest-ever price). He also proposed that the head office of the new company would remain in St. Louis and that it would be renamed AB InBev, thereby preserving the American name. The InBev executives knew that the price was very important to convince the AB shareholders, but they also had to show their due appreciation of the AB traditions to preempt any resistance to the move by AB itself. And then of course there was the court of public opinion. Maintaining the location of the head office and awarding Anheuser-Busch first billing in the new company’s name were the sensible things to do, as any war over status symbols would only hold up the deal.
Brito hung up. Before signing the letter, the two representatives of Lazard, InBev’s main financial adviser, asked for five minutes of his time. Steven Golub, 62 years old at the time and an experienced banker, warned Brito of the turbulence ahead. “The trip we are starting with this letter will last a long time,” he said. “There will be days when we will be up and others when we will be down. The other side will do things we have not thought about and, at some point, we will have to revise our plans. Be prepared.”
Although Brito was confident in the acquisition, he had never led a business of this size, and listened to the banker’s recommendation in silence. The other Lazard representative, Antonio Weiss, a New Yorker, told Brito that he had taken part in a number of mergers and acquisitions and that when things did not go well, the CEO was usually the first person to be shown the door. “If I do the right things with my team and the other side decides not to sell, I don’t think I will get the blame,” said Brito. “Obviously, if I mess it up, that will be a different story… People are prepared to take greater risk here and dream on a large scale because they know they will not be crucified if something goes wrong provided they stick to what we have all agreed together.”
Weiss said no more.
Golub was right when he warned Brito about the difficulties to come. A fierce battle broke out for control of the American brewer the moment Brito and Busch hung up. The proposal not only became a divisive issue between the shareholders and executives on the two opposing sides, but internet sites against the deal popped up, making it a national political matter. The then candidate for the presidency, Barack Obama, even claimed it would be a “shame” if AB was purchased by a foreign company.
Someone had to explain the Brazilians’ plans to the Americans, and that someone would not be Lemann, Telles or Sicupira, who all had an aversion to spin tactics. The burden fell on Brito, who was unused to the spotlight, and not exactly renowned for his diplomacy. But the situation was dire enough that he had to overcome his discreet but harsh delivery and get ready for the artillery. He had to make a convincing case and, somehow or other, create great sympathy for the plan. His baptism by fire occurred on June 16 in Washington during a meeting with Claire McCaskill, the Democratic Senator for Missouri, and other members of the Senate.
“I did not know that McCaskill had invited journalists,” Brito recalled. “I had prepared myself to talk to the Senators when suddenly she opened the door and left the room. One member of our team, who had been outside, came in and said the press was waiting for me. There was only one way out and I had to go through that door. It was like a film scene: you open the door and everybody starts rushing at you with microphones, asking about your intentions; wh
ether you are going to buy the company or not, whether you will be firing workers or not. That’s how we had to make our case that the aim was to create a single company that would have the best of both sides on their own. We wanted to take Budweiser global and give better opportunities to the best people. We said we had made some commitments – not to close plants, to keep the company name, maintain the head office in St Louis. How could anyone be against this? What could anybody say? That the companies should stay separate and remain worse than they would be if they got together?”
While InBev was making efforts to win over the Americans, Anheuser-Busch was preparing its defense strategy. The AB executives were not remotely willing to hand the company over to the Brazilians. They knew what had happened to Belgium’s Interbrew, which had also been a long-established family-controlled firm. Although Interbrew had actually bought Ambev, it was the Brazilians’ culture and management style that ran the show.
The Fourth needed to convince investors that, although AB shares had been stagnating recently, selling the company was not the best way to regain growth. With the help of executives, advisers and some members of the board of directors, he drew up a cost-cutting plan. At the same time, he tried to form an alliance with the Mexican company Modelo to show that AB could expand without having to surrender its control to a rival. His strategy made the turbulent relationship he had with his father, August III, even worse. While the Fourth wanted to resist the bid at any cost, the Third thought it would be better to sell out to InBev at a fair price than create a great fuss.
“The Third’s greatest worry was that the share price would plummet if the offer was rejected,” said a person who followed the negotiations. The first obvious sign that the deal between the brewers was raising concern among some shareholders came when Warren Buffett, the second-largest stockholder with a stake of almost 5%, started selling stock on the market at around US$ 60 a share – five dollars below the InBev offer.
DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz Page 2