DREAM BIG: How the Brazilian Trio behind 3G Capital - Jorge Paulo Lemann, Marcel Telles and Beto Sicupira - acquired Anheuser-Busch, Burger King and Heinz

by Cristiane Correa

  “There were people on the board who, in my opinion, tried to carry out highly non-commercial things to block those they called the ‘invaders,’” Buffett said about the episode.

  Buffett is one of the world’s richest men. Forbes magazine reported in March 2013 that he was the fourth richest man on the planet, with a fortune of more than US$ 53 billion. Buffet operates from an office on the 14th floor of an anonymous grey building in Omaha, a city of 427,000 inhabitants in Nebraska. He has been making the same daily trip from his home to his office for 50 years. Despite his fabulous wealth, he has not changed either address. The head office of his company, Berkshire Hathaway, only has 24 staff, including the founder himself. Visitors do not encounter any security or even a receptionist. There is just a small plate bearing the company name on the office door with a doorbell alongside for those who want to enter. It is decorated in an old-fashioned way, with dark furniture, wooden blinds and shelves filled with books. The Sage of Omaha’s own office measures a modest 25 square meters. On a sunny Saturday morning on May 19, 2012, Buffet made himself available to talk about his longstanding friend, Jorge Paulo Lemann, whom he met in 1998 when they were both sharing views and experiences on the board of directors of Gillette. Buffet was wearing khaki trousers and a long-sleeved, blue shirt bearing the initials of his company – BH – embroidered on the front. With a welcoming half smile, he leaned back against a leather cushion and recalled his first meetings with Lemann:

  “I knew absolutely nothing about him and had never even heard of him. We used to meet every two or three months and it took some time before we really got to know each other. However, you learn a lot of about people on a board of directors. What I noted right from the beginning was that he said things that made sense. He didn’t pretend to know things he didn’t or talk just to hear the sound of his own voice. He had a tremendous view of business and was articulate, which cannot be said for all board members.”

  Buffett and Lemann share a lot in terms of lifestyle and working habits and this was the basis for the firm friendship they built up. They hate ostentation, dress simply and are straight talkers. Both have created relationships that have lasted decades – Buffett with Charlie Munger; Lemann with Telles and Sicupira. The two have the same ambition of building up companies that are sustainable. Buffett likes to see Berkshire as his great “painting,” a work of art that will never be perfect and should become more beautiful with every passing year. Lemann’s dream is to build a management model that will be a benchmark for companies in the 21st century. Accumulating money is more a result than an objective for both of them.

  “It’s not about thinking ‘if I win a million dollars or a billion dollars, the game is over,’” said Buffett. “That’s because after a certain point, money is of no more use.”

  Despite their close relationship, Buffett said he had been taken by surprise by the Brazilians’ offer for AB:

  “I thought that he would do it one day, but did not know it would be at that moment. It was an enormous step at a completely hostile time. There was one moment when I honestly did not think the deal would go ahead. It was the only transaction of that size at that time... My decision was to evaluate whether, against that backdrop, the share price would rise or not and whether the deal would really be made despite the crisis. I then sold a part of my stake which annoyed some people. I didn’t know how the AB board worked. I had met the Fourth only once at a baseball game and spoken personally to the Third about 15 years earlier. I had never spoken to them by phone or had any relationship. This happens sometimes with companies in which we invest. We had a big investment in AB but not as big as we have in Coca-Cola, for example. I liked the company and we had been part of it for many years... It would be difficult to lose money there just as it would be difficult to make any great gain. It was a solid option, but nothing particularly exciting.”

  Under pressure, the Anheuser-Busch representatives decided to counterattack. If the American brewer had to end up in other hands, then it would be at the best possible price. On July 8, Busch IV phoned Lemann. Two members of the AB board of directors, Ed Whitacre and Sandy Warner, were by his side. Both were old acquaintances of AB and friends of the family. Whitacre had made his career in the telecommunications sector and become CEO of AT&T. Warner was a retired banker who had become famous after selling JP Morgan, the bank he headed, to Chase Manhattan in 2000. The message the three men sent Lemann was crystal clear: if he wanted to buy AB, he would have to move quickly and pay more money than he had foreseen. As soon as he hung up, Lemann called the main players in the bid. One of the first to be told about the Busch IV call was Roberto Thompson, who was known to people close to Lemann, Telles and Sicupira as “the ex-bankers’ banker”.

  Thompson had met them after returning from an MBA course at Wharton in 1986, when he went to work at Garantia. In 1993, he followed Sicupira, who had left the Lojas Americanas retail chain to set up GP Investimentos, the first private equity firm in Brazil. It was during his time at GP that Thompson saw how big companies were run on a daily basis. He gradually gained the trust of the three until he became a kind of consigliere for them. He was responsible for structuring the large acquisitions by companies they controlled, such as the São Paulo brewer Antarctica and the sale of Ambev to Interbrew. Someone who took part in a meeting with Thompson described him as a polite, cold and pragmatic person who rarely smiled or raised his voice – a winning trait in the war of nerves these large negotiations usually turned into.

  “The AB representatives said we had 24 hours to make our best offer,” Thompson said, referring to the Fourth’s phone call to Lemann. “We quickly called a meeting of the board by phone, as every member was in a different part of the world. We had to redo the accounts and everything had to be well thought out. The amounts involved were very large and there would be no share swap but cash payments. At the end of the meeting, we decided that we could raise the bid by five dollars a share.”

  On July 13, after weeks of arm wrestling and several meetings that directly and indirectly involved almost 500 people, including shareholders, lawyers and bankers, Anheuser-Busch finally relented, accepting InBev’s offer of US$52 billion. But the deal still needed the approval of the shareholders of both companies and the regulatory bodies.

  Convincing the Americans to give up control of the company had been very difficult, but though they were now the world leader in the beer market, the worst was yet to come for the Brazilians.

  The global economy had been showing signs of cooling for several months when on Sunday September 14, 2008, in an event more dramatic than even the pessimists had predicted, Lehman Brothers, the fourth-largest bank in the US, filed for bankruptcy protection after a number of failed attempts to rescue it. The end of Lehman Brothers, an institution with 150 years of history, was the spark that set off a grave financial crisis similar to 1929. Fear spread throughout companies and banks and encircled the world. Merrill Lynch agreed to be sold to Bank of America for US$50 billion, one–third of its market capitalization. Companies listed on the New York Stock Exchange lost over one trillion dollars in market value in a single day. This state of affairs was a matter of great concern, to say the least, for the Brazilians from InBev who needed to pay US$ 52 billion to the Anheuser-Busch shareholders as soon as the deal was completely approved. How could the company honor its debt with virtually all the world’s sources of money drying up?

  “For two months, between the crash of Lehman and the end of negotiations, we were really anxious,” recalled Brito. “Things were out of our hands and nobody knew where the world was going... We announced the transaction in one world and signed the contract to buy it in another... Some of the banks in our consortium almost disappeared... It was as though we had entered a tunnel and, somehow or other, had to get to the other end – only by the other end, it had suddenly started to rain. What could you do? Begin to think of a plan B, a plan C, on other ways of financing... One good thing was that no-one wasted time accus
ing anyone else with nonsense like, ‘I told you this would happen’... we had to deal with an unexpected situation.”

  Lemann, Telles and Sicupira followed every step attentively. Though the collapse marked an unprecedented development, they had developed the ability to remain as calm as possible during dramatic episodes, not only during their time as bankers and entrepreneurs but also in sport. Lemann is an excellent tennis player and before his status as an accomplished businessman, competed at professional level. Perhaps even more impressive is that the three partners practice underwater fishing, a radical sport that combines physical resistance and absolute precision in firing a harpoon, and this moment demanded the preparation, patience and execution they had developed together on the seabed.

  The acquisition of AB did not unravel, thanks, to a large extent, to the intricate agreement created by the InBev CFO, Felipe Dutra, with the consortium of banks that would finance the operation. Like Brito, Dutra, also from Rio, had worked with InBev’s controlling partners for many years. He was an economist and joined Brahma in 1990. He had been CFO since 2005. Dutra was detail–oriented and had established an aggressive set of conditions in the contract with the 10 banks involved in the deal – Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank of Scotland. His greatest triumph was to successfully exclude a clause known as the Material Adverse Change (MAC), which guarantees the institutions the right to renegotiate the financing conditions in the event of any sudden worsening of the situation. As the banks did not have this clause in the contracts, they were obliged to adhere to all the conditions to which they had agreed before the crisis broke out and they were legally prevented from abandoning ship. Along with this watertight contract, the Brazilians also had a generous dose of luck. None of the banks within the consortium went broke, like Lehman Brothers, although some of them were pretty affected, such as the Belgian bank Fortis, part of the group of lenders and one of those most affected by the global turbulence. The government of Belgium intervened before it was too late.

  “If we had placed Lehman instead of Fortis, everything would have been screwed up,” Thompson said.

  At the same time, InBev’s main shareholders also had to provide some money. Lemann, Telles and Sicupira jointly put up 1.5 billion Euros of their own money to guarantee that the transaction would be honored. As most of their personal assets consisted of shares in the companies in which they invested, they had to take out loans and cut their personal spending. This even extended to their office on the 15th floor of a building in the Southern Zone of São Paulo. The area was cut by half to reduce the cost of renting it and has remained so to this day.

  On November 18, 2008, almost six months after the Financial Times revealed InBev’s secret, the operation was finally concluded. Three Brazilian businessmen, Jorge Paulo Lemann, Marcel Telles and Beto Sicupira, had become the main shareholders in a new giant corporation with an annual turnover of US$ 37 billion, over 200 brands in its portfolio and a global presence. In less than two decades, they had transformed a regional brewer with a strong name and feeble results, Brahma, into the biggest company in the sector at global level. All this had been achieved by repeating ad nausea the mantras of the corporate culture Lemann had adopted at the beginning and then spread to all the companies in which they invested: meritocracy, relentless cost control, hard work and a lot of pressure that not everyone could endure. There were no perks or status symbols. However, for the best – people like Brito, Thompson and Dutra – the opportunities gave them the chance to become business partners. It has been estimated that since Banco Garantia was founded in 1971, between 200 and 300 people who worked in the three partners’ various businesses have each earned more than US$ 10 million. Forbes magazine reported in March 2013 that Lemann was the 33rd richest man in the world, with a fortune of almost US$ 18 billion (Telles and Sicupira were ranked in the 119th and 150th positions, with US$ 9.1 billion and US$ 7.9 billion, respectively). The three are among the 10 richest people in Brazil. Those who know Lemann well have no doubt that he only became a top-level billionaire because he enriched dozens of people on the way. The acquisition of Anheuser-Busch, as was to be seen later, would transform another group of executives of a brewer controlled by Lemann, Telles and Sicupira into millionaires. It would also only be the first of a series of moves the Brazilians would make on big American companies.

  A surfer at Harvard

  Jorge Paulo Lemann was born in Rio de Janeiro on August 26, 1939, and has had a comfortable financial life since childhood. His father, Paulo, moved to Brazil from the Swiss town of Langnau at the beginning of the 20th century. Jorge’s uncles, his father’s brothers, emigrated at the same time – one to Argentina and the other to the United States. The three left behind a cheese and dairy business, which had been the family’s mainstay for decades and still exists today. Paulo came to Brazil after being hired by the Swiss shoemaking firm Bally, owner of Cortume Carioca, which operated in Rio’s Northern Zone, and spent several years working with leather and shoes until he decided to resume the family tradition by opening a dairy plant in Resende. He called the company Leco (an abbreviation of Lemann & Company). Years later, it would be bought by Hélio Moreira Salles, brother of Walter Moreira Salles, the founder of Unibanco.

  After he had been in Brazil for several years, Paulo met Anna Yvette, a Brazilian girl of Swiss parents, who became his wife. (Her father worked in a cacao trading company that sent managers to the Ilhéus and Itabuna region.)

  “The Swiss came to Brazil to work, were captivated by the place and ended up staying,” said Alex Haegler, a cousin of Lemann. (Haegler’s mother was Anna Yvette’s sister.) The family set up home in a comfortable but not extravagant house in the Leblon district. Lemann’s parents were both raised according to the Protestant ethic, which is based on thrift and a disciplined approach to work and would be one of the foundations of his intellectual formation.

  The parents made a point of seeing that their son had a good education and he entered the American School of Rio de Janeiro, one of the best in the city, at kindergarten level and stayed until he was 17 after finishing what would now be regarded as high school. He became fluent in English at an early age, which was a rare skill at that time and became extremely useful when he entered the financial market. At the age of seven, he began playing tennis, a sport he has followed his whole life, at the Rio Country Club in Ipanema, which was a bastion of high society. Lemann was ultracompetitive on the court, winning a number of children’s championships and becoming the Brazilian juvenile champion when he was 17. He attributes his early athletic success to strict adherence to a sportsman’s lifestyle: no dances, alcohol or heavy food. He gave up red meat for many years and, to this day, not only refrains from alcohol, but carries raisins or dried fruit in his pockets for snacks between meals.

  His day began before dawn, when he would get up at five o’clock, run a few kilometers along the shore at Leblon and then climb the wall into the Country Club to hit a ball around before the doors were opened to members. The tennis court was where he learned a lesson he still follows. One of his coaches told him that nobody ever won a game by playing to the crowd. In other words, rather than show off his skills to the audience, he should concentrate on improving his game. This advice was worth its weight in gold to a disciplined boy who already seemed to favor discretion.

  His weak point: girls. “However, he only dated those who did not interfere in his habits of going to bed and getting up early,” said Haegler.

  When he was not playing tennis, Lemann could be found surfing on the beaches of the Southern Zone. He was “one of the best surfers in Rio de Janeiro” in his own, not exactly modest evaluation. It was while surfing that he got one of the biggest scares of his life. One day, he and a group of friends decided to tackle the choppy waters at Copacabana beach after a heavy storm. He was confident about his skills and was not put off by the giant waves that were t
hree times higher than he was used to. Lemann spoke about this episode in 2011 at an event organized by the Fundação Estudar (a foundation he had created almost 20 years earlier to finance Brazilian students at home and abroad):

  “The waves were colossal... It was almost impossible to swim beneath them...I felt the blood rushing to my feet... I got onto a wave and managed to get out of it before I was trapped... My friends said we should do it again but that experience was enough for me. My adrenalin was at its highest...I liked that feeling, but I didn’t want to feel it again... You have to take risks in life and the only way is to practice... I practiced in the waves, at tennis and later in business... I have often remembered that wave at Copacabana more than the things I learned at college.”

  When he was only 14, Lemann had to cope with the unexpected loss of his father, who was run over by a tram in Botafogo. From one moment to the next, the youngster of the family became the man of the house. His sister Lya, who was 10 years older than him (now deceased), had emigrated to the United States after marrying an executive in the pharmaceutical industry. At that time, Lemann became even closer to his cousin Alex Haegler who was six years older than him. Haegler went to study at Harvard, where he became captain of the tennis team. Lemann, who was elected the “most likely to succeed” by his classmates at the American School, decided to follow the same path and enrolled in an economics course at Harvard – a decision that would change forever the way he looked at the world.

  With over 350 years of history, Harvard University stands alongside other Ivy League teaching institutions like Yale and Princeton as an elite force within the American university system. Eight American presidents studied there – John Adams, John Quincy Adams, Rutherford B. Hayes, Theodore Roosevelt, Franklin D. Roosevelt, John F. Kennedy, George W. Bush and Barack Obama – as have more than 40 Nobel Prize winners. Located in Cambridge, Massachusetts, a town with just over 100,000 inhabitants, its campus covers almost five square kilometers and currently attracts 21,000 students from all over the world. The prestigious Massachusetts Institute of Technology (MIT) is nearby and Boston, the birthplace of American independence, lies just over the Charles River.