Dethroning the King (20 page)

“His love and respect will be when I'm ultimately successful,” said The Fourth, admitting that his transition into the CEO spot had been “a very difficult, fluid situation.” He had “never, ever had a father-son relationship” with his dad, he went on. “It's purely business.” He concluded, “I honestly do believe if I failed in my professional life, it would be much harder to ever gain his respect.”

He later regretted making those comments, which shook his advisors' confidence in him and looked embarrassing in hindsight—especially his admission that he had saved the few notes of praise he had received from his father in his briefcase. In his first decade of full-time work at the company, he had received only five. Industry watchers wondered what The Fourth's public relations team could possibly have been thinking in allowing the interview, and there were a few incredulous reactions as well on InBev's side of the fence. “We all sat around saying, Whoa. This is, like, a bizarre family drama we've stepped into,' ” said one person close to the company.

The Third, as usual, stayed silent on the matter.

—Head of a rival brewer

 

 

 

T
here was a clear sense by the time August IV took over that Anheuser-Busch's golden era had ended, and he quickly grew paranoid that the company was vulnerable to a takeover or to the machinations of activist shareholders like Nelson Peltz, Eddie Lampert, and Bill Ackman, whose investment funds zeroed in on consumer-oriented companies that had grown fat or complacent. The Fourth had good reason to be worried. Rumors were rampant that one activist or another was buying up shares on the sly.

The company no longer had a handful of little brewers to chew up and spit out, and the huge profit margins it had enjoyed as it rode the market's wave upward over the years weren't enough to bank on anymore. Another lever needed to be pulled, and August IV, unlucky in his timing as the company's new CEO, was supposed to find it.

The biggest move he could make—one that would be much more hard-hitting than just slashing a bunch of costs—was executing a game-changing merger. There was a significant problem with that idea, though. That boat had sailed, with nearly every other brewer on it, while his father and Stokes had been in charge. All of Anheuser-Busch's major rivals had made huge consolidation plays of their own, with SABMiller and InBev aggressively leading the charge, and Anheuser had been left standing alone on the dock.

The most frustrating thing for The Fourth and his management team was that the problem they now had to fix—Anheuser-Busch's woefully inadequate global strategy—was a problem his father had spent nearly three decades creating. After The Third reached his life's goal and seized half of the U.S. beer market, Anheuser-Busch had run into a significant dilemma. What came next? The Third had trained his eyes so unflinchingly on crushing Miller in America that he seemed either blind to what was going on in the rest of the world or simply uninterested. That hubris—that callous disregard for Anheuser-Busch's global competition—now looked foolish and small-minded.

The Third had faced a critical choice during his tenure. If Anheuser-Busch wanted to keep growing, it needed to either expand into other countries or start producing other types of consumer goods, molding itself into a company more along the lines of Philip Morris. Rather than picking one of those avenues and sprinting down it with vigor, the risk-averse August III took baby steps in both directions.

In 1982, Anheuser-Busch made its first major foray into other types of consumer products, purchasing Campbell Taggart, the second-largest bakery in the United States, and creating the Eagle Snacks food unit. Anheuser's executives thought they understood the bakery and snacks businesses because they dealt in simple, store-delivered products. They figured their wholesalers would want to branch out and start delivering bags of pretzels and loaves of bread to the same stores that were already ordering beer. Campbell Taggart's profits plunged, though, and despite Pat Stokes's best efforts, the operation never really recovered.

“We felt we understood store door delivered products,” said a former top executive. “We thought our wholesalers would like it, but it just didn't work out. It went into a cyclical down period, and we ended up holding the bag on something that fell far short of our forecasts.” Jerry Ritter, Anheuser's chief financial officer at the time, admitted that the purchase of Campbell Taggart was made in haste and was overpriced, despite The Third's propensity toward heavily evaluating such decisions. August III even admitted he didn't understand the business as well as he should have. “We made our share of mistakes, but we are now quite optimistic,” he said.

One of the few deals Anheuser-Busch did right as it attempted to diversify—its $1.1 billion purchase of Harcourt Brace Jovanovich's Sea World theme park properties in 1989—looked like a comedy of errors at first. Anheuser paid roughly 50 percent more than people had expected it would, and after the costly deal was inked, it became clear that the rights to Shamu, the famously recognizable killer whale character that drives attendance at Sea World each year, were still owned by a tiny California-based animation company. Anheuser had to shell out another $6 million, and a good deal of pride, to lock up Shamu.

To an extent, Anheuser's decision to dabble in areas like theme parks, bakeries, and snacks made perfect sense. Those businesses helped deflect criticism and attempted to minimize the risk it ran as a purely beer-centric company. As one former executive explained, “If you're in the theme park business, you can positively impact millions of consumers every day and tell them what a great company you are in a way that has nothing to do with alcohol.”

Yet from a financial perspective, nothing else compared to the way Anheuser was minting money as it brewed beer. People simply weren't willing to pay the same markup on pretzels that they'd pay for beer. So Anheuser-Busch spun off Campbell Taggart and Eagle in 1996 and retreated back into its former role as a pure-play beer company, now with some theme parks on the side.

“The other companies weren't making the return on investment that the beer company was making, and held to that standard they didn't compare favorably,” said one former executive. “It would have been hard to match the return on investment the beer company was generating. I don't care what business you were in. They were probably held up to an unrealistic benchmark.”

All of the hours Anheuser's top executives spent chasing diversions like snack food and hot dog buns hurt the company where it needed help the most—brewing and selling beer in other countries. Unlike most consumer goods giants, Anheuser-Busch didn't employ a raft of worldly, well-traveled staffers who had strong views on its global growth strategy. Rather, The Third sometimes used the international unit as a place to park employees who didn't meet his standards elsewhere.

“There was nobody in the company that had any real foreign experience,” said Rick Hill, Anheuser's former assistant treasurer, who is now an investment advisor to many former Anheuser executives in St. Louis. “Even the people in charge of international brewing were Americans; they didn't speak any foreign languages.”

“As a young person looking to the future of the company, and looking at what other companies were doing internationally, their approach was just crazy,” added Buddy Reisinger, his business partner, who worked for Anheuser-Busch for more than a decade. “A lot of times, it was totally discouraged. What the hell would you want to work overseas for?”

“I bet 90 percent of the employees came from south of Highway 40, out to 270, and to the river,” Reisinger added, mapping out a patch of turf south and west of downtown St. Louis.

Anheuser-Busch missed out on several global expansion opportunities thanks to The Third's overly cautious insularity. He passed up repeated chances to cut deals that would have redrawn the global beer industry's map and protected Anheuser-Busch against takeovers. And he burned some bridges in the process that proved impossible to rebuild.

Anheuser-Busch tried repeatedly, for instance, to launch Budweiser in South Africa in the 1990s. Although local beer leader South African Breweries was the only company Anheuser trusted to brew Budweiser on site, SAB chief Graham Mackay wasn't interested. Mackay and The Third continued to see each other on occasion. Mackay visited Anheuser in the United States in the early 1990s, when South Africa was on America's blackball list for operating under the rule of apartheid. And on their occasional trips to South Africa, Anheuser's top international executives would usually visit with him.

On the most memorable one of those jaunts, which occurred when Anheuser was loosely considering SAB as an acquisition target, August III traveled to Africa with Jack Purnell and John Jacob, who was head of the National Urban League and an Anheuser board member. SAB didn't rank high on Anheuser's takeover list at the time because its sales were so heavily concentrated in one region, but Anheuser nonetheless felt a “get-acquainted” trip was warranted.

The trip helped reinforce that there wasn't enough chemistry between The Third and Mackay to serve as the backbone for an acquisition. Mackay was impressive and self-confident, but a bit too arrogant in Anheuser's view. “That doesn't mean he's a bad person,” said one person close to the company. “I think he was justifiably self-confident. But anyway, that's the way he comes across. You're not going to see smiles.” Anheuser's trio toured a few SAB breweries during its stay and even met for two hours with Nelson Mandela, who was angling to recruit more companies to invest in South Africa.

On the way back, the Anheuser executives were planning to stop in Munich so August III could give a speech at a huge brewers' conclave. But when their jet crossed into Zambian airspace, air traffic controllers said it lacked clearance to proceed and instructed it to either land or turn around. The notion of dropping into Zambia unannounced wasn't particularly appetizing, so they banked and returned to South Africa to secure the clearance they needed. Purnell, realizing they weren't going to make it to Munich that night, called his secretary in St. Louis from the airport tarmac and told her to summon Abercrombie & Kent, the ultra-luxe vacation provider, to book anything they might have available for the night between South Africa and Germany.

Abercrombie told the Anheuser executives to drop down for the night in Luxor, where half a dozen fez-topped Egyptians dressed in purple spilled out of a minibus to greet them when they landed. They bunked down that night in one of the city's grandest hotels, confident their trip had been a rousing success.

The feeling wasn't mutual. The Third hadn't made a particularly strong impression on his colleagues in South Africa. SAB's team had been planning to take its American guests to Soweto, a poor black township near Johannesburg where some of the key uprisings against apartheid had occurred. When The Third's ever-present security guards heard of the plans, however, they refused to let him go. So while the rest of the group, including other members of Anheuser-Busch's team, spent part of the day learning about the wrenching Soweto Uprising, The Third stayed back to keep out of harm's way.

Mackay thought his American counterpart was a shy, insecure, and somewhat strange man, and their run-in in Africa wasn't the only uncomfortable moment suffered between the two chief executives.

In the late 1990s, a minority stake in SAB that was owned by a company called Bevcon came up for sale. Goldman Sachs was running the auction process, and there was talk that whoever bought the small stake would garner a disproportionately large amount of control over SAB.