Dethroning the King (5 page)

A few moments later, Gross and Ingrassia, along with a small coterie of Anheuser's top staffers—men such as Chief Financial Officer W. Randolph “Randy” Baker, international head Thomas Santel, marketing chief David Peacock, chief legal officer Gary Rutledge, and internal M&A head Robert Golden—were summoned out of the room and asked to go join August IV in a back room a few steps away. They walked in to find The Fourth waiting for them, grave-faced.

Brito had just telephoned from Brussels to provide fair warning that he was about to send a letter proposing a takeover, The Fourth said quietly. Brito's heads-up represented a queer bit of Wall Street decorum—a way of politely patting someone on the back just before slapping him in the face. The InBev letter, which would formally confirm details of the bid, was on its way by fax. However, from his conversation with Brito, The Fourth already knew enough. InBev was proposing to buy Anheuser-Busch for $65 per share, or $46.3 billion, the same price that had been rumored.

There were a few hiccups and conditions: InBev wanted access to Anheuser's confidential financial information so it could be better-informed, and it hadn't provided many specifics on how it planned to actually pay for the takeover. There was no mistaking it—one of the worst fears of each executive sequestered in that fluorescent-lit conference room was now a harsh reality. InBev's bid qualified, in Wall Street parlance, as a typical “bear hug”—an attempt to make a hostile takeover by offering such a high price that the target simply can't refuse to consider it. Anheuser-Busch was being smothered.

The Fourth was astute enough to know that InBev's entreaty was a big deal. But he hadn't handled a situation like this before.

“Tell me what to do now,” he instructed his advisors. “What do I do now?”

The group quickly hunkered down and started to map out a strategy, each staffer tossing in his ideas. They had to contact Anheuser's board of directors to get them organized, since the board would need to meet within a few days to set a course of action. They needed to loop in Anheuser's lawyers to set up a legal strategy, so they picked up the conference room phone to patch in Joseph Flom and Paul Schnell, two New York-based partners at the giant corporate law firm Skadden, Arps, Slate, Meagher & Flom, to brief them on the situation. Flom, a legend on Wall Street, had been Anheuser-Busch's legal counsel for decades and had an incredibly close-knit professional relationship with August III.

Because InBev was a foreign brewer looking to gobble up an iconic American company, the executives also knew they needed to get cracking immediately on a public relations strategy. Randy Baker put in a call to Lawrence Rand, a longtime partner at New York public relations firm Kekst and Company, who had been working with Anheuser-Busch behind the scenes for years in preparation for just this sort of event. Kekst advised a high-powered roster of companies and investment firms on how to handle public exposure, and it specialized in takeovers. The firm would need to brief Anheuser's internal PR staff on how to handle the situation, help them prepare materials for employees, shareholders, and the media, and start figuring out which buttons to push with politicians and community organizations.

Some of the men in that room, when they found a moment to catch a breath, decided that InBev's overture seemed eerily well-timed. The Brazilians had lobbed in this grenade of an offer just as Anheuser-Busch was trying to get the components of its cost-savings plan in place to unveil it to analysts. Was it just a coincidence? Or did InBev somehow know what they were up to?

Half an hour after The Fourth pulled his deputies out of their brainstorming session, the soccer park's fax machine sprang to life and spit out the offer letter from InBev, addressed to August IV. A few phrases jumped straight off the flimsy piece of paper. A merger of the two companies would be an “industry-transforming event,” Brito said. “InBev is prepared to pay $65 per share in cash.” Brito worked in a quick shout-out to Anheuser-Busch's beer wholesalers and its employees, said the merged company's North American headquarters would be in St. Louis, and said InBev would be renamed to reflect Anheuser-Busch's heritage. He was clearly trying to dampen Anheuser's ability to scuttle the deal by rallying popular sentiment.

International head Tom Santel, who had also been the company's strategic planning chief for the past decade, had been tracking InBev at the request of Anheuser's board of directors for nearly two years. Everybody knew that Anheuser was vulnerable and that InBev was a likely aggressor, but they hadn't been able to agree on a way to defend themselves. With InBev's fax now sitting there on the table, it felt as though the walls were closing in. “Seeing something like that in black and white, it suddenly becomes more real,” Santel said. “It was like, okay, here we go.”

The back room suddenly seemed stifling, so as a couple of the executives rejoined the larger group, several others stepped onto an outdoor deck alongside the building to continue their conversation. Another posse of Anheuser-Busch staffers who were congregated on a separate deck glanced over quizzically, trying to discern what was going on. After the men wrapped up their hushed discussions, they filtered back into the main conference room, hungry and scouting for lunch.

The rest of the angst—ridden strategy committee sat scattered around a few trays of food, picking over sandwiches and salads as they waited for the session to reconvene. It was obvious that something was up—August IV had disappeared, several other top executives had gone missing, and the two bankers who had been presenting to the group had vanished. They all knew what was coming. Their worlds were about to change. For those final few seconds before the boom actually hit, though, the uncertainty was still comforting.

“I do remember a fairly surreal feeling of being in this back room with August, knowing what was now definitively coming at us, and then walking back into this group of people who had no idea what was going on, who were sitting at a buffet getting food, with all the knowledge of what was coming their way that would change their lives forever,” said one person who had been summoned out of the room by The Fourth. “Knowing that and grabbing something to eat, and thinking about how much this could radically change their lives and the city of St. Louis . . . I do remember thinking it was fairly sur real.”

Roughly an hour after he left the conference room, The Fourth finally stepped back through the door. His agitated subordinates turned toward him and went silent in expectation.

“I just got a call,” he said, his eyes flashing around the room to gauge his deputies' reactions. He briefly sketched out InBev's offer, gripping the company's fax in his hand, and then outlined what his team had planned so far in response. A few pockets of nervous chatter erupted as the group started to internalize what was happening.

“Are we going to fight this?” The Fourth asked, after giving the news a moment to sink in. He amplified his rhetoric a notch. “Are we going to stay together and fight this? What's the vote?”

Everyone in the room said yes. Loudly. What else was there to say? At the same time, their shell-shocked minds started to silently race—to warp ahead six months or a year, trying to picture Anheuser-Busch's future. They had put in 70-hour workweeks for decades. The company was their lives. What would it be like to no longer work for the most famous employer in St. Louis? To no longer feel quietly superior at Cardinals baseball games or to live in the only house on the block that was always stocked with free Budweiser? It was easy to bash The Third and The Fourth for their weaknesses, but they respected them, too.

“Most of these people are from St. Louis, and this is, like, the dream,” one of the executives said. “They're the gentry class in their community. They grew up in south city with nothing, and here they are working at A-B. They're giving beer to their friends on the weekends and are the heroes of the neighborhood. Give that up? I'm not trying to be trivial, but this is how the psyche is in this town.”

For many of the company's top executives, there also raged a more complicated internal battle. InBev's offer valued Anheuser-Busch at a much higher level than anyone else had in years. What would their piles of stock be worth at $65 per share, they wondered, running over the math in their heads. And what if Anheuser-Busch could get InBev to offer even more? That might mean a five-bedroom house in Vail rather than three, they thought—or maybe a 70-foot yacht rather than a 45-foot day cruiser.

“You're kind of going, ‘Okay, at least we're worth something,' ” one of them said. “You have that little part of you that's going ‘Geez, the valuation is good. I don't like the way this plays out. The only way I'll get my money is if this place goes away.' ”

“Isn't that terrible, though, and selfish?”

There was another factor adding to their guilt-tinged calculations, too. If they put their efforts where they had just put their mouths and actually fought InBev's bid, this could be the start of a years-long struggle to fend off one aggressor or another. And if they eventually prevailed, they'd still be stuck with the same ineffective management and paralyzed board of directors. It was, according to one executive, “a little sense of, not fear, but of fatalism, in that ‘Okay, we fight this, and then the same management and board is still here. And they won't let us do anything.' ”

The executives kept their mouths shut as these thoughts flew through their minds, ashamed by some of them and frightened by the lack of clarity on what lay ahead. One senior staffer let his bias slip, however. “We need to get that price up,” he remarked off to the side. The ill-timed comment irked his more loyal peers, but they let it slide. Everyone was too stunned to care.

“We all knew it was possible because of the rumors,” said one executive who was in the room that day. “But when the news finally came in, it was like a sock right in the stomach. It was hard.”

InBev's formal entreaty sent wheels screeching into motion at Anheuser-Busch headquarters and, 900 miles to the east, up and down Wall Street. Emergency meetings were called as August IV began dialing down the list of people who needed to be put on alert. Once Anheuser and its lawyers determined that they should release InBev's offer publicly to keep shareholders in the loop, press releases were drafted and redrafted. The company's 14-member board of directors started checking in to determine when it could meet, and lawyers at Skadden, bankers at Goldman, and legions of other professionals who wanted to get in on the action dropped what they were doing and began clearing their schedules. Everyone was concerned, of course, that a company as legendary as Anheuser-Busch was falling prey to a foreign giant. There was also a tinge of excitement at the notion that they could be pulled into the highest-profile takeover battle of the year—and the largest all-cash merger bid ever.

After the beer executives' shock wore off that day, they bent their heads toward the conference room table and got down to business. Dave Peacock and Randy Baker, who had returned from their closed-door session with August IV more determined than ever, led the effort. If they had any chance of beating InBev back, they were going to have to convince Anheuser's shareholders that they had suddenly not only gotten religion on cost-cutting but could also execute on their plans. For a range of frustrating reasons, execution had been Anheuser's weak point since August IV had taken over as CEO in late 2006. Now they buckled down with renewed intensity, and the ideas came flying.

“It was totally surreal, because you're looking across the table at each other and you know it's not going to be the same,” said Bob Lachky. “Nobody knew what was going to happen. For the first time in a long time, you saw people who had control of pipelines or fiefdoms suddenly being a little bit more open about giving up their goodies, because we had to do it for the common good. It was like ‘Okay, I'll give up all my perks. My nice little Escalade. ' Everything is on the table, from the most important budget items to the ones that were perks for top executives. Give it up, give it up.”

It soon became clear that many of the cuts they were making were embarrassingly easy to identify. Anheuser-Busch had made such a substantial profit on every bottle of beer it sold for so many years that it had never needed to be strict on expenses. As one advisor put it, “Wildly failing at the management of expenses, their margins were ten points higher than Procter & Gamble's.” Plenty of things could be done differently—or not at all—to generate more money, and InBev was bound to point them out if Anheuser-Busch didn't find them first. Anheuser had been floating along in its own little free-spending bubble for decades as the real world had developed around it.

As the group dissolved and headed home at the end of that first long day, they realized they had just become part of America's corporate history. It wasn't a part they wanted to play. Anheuser-Busch had always been the country's patriotic, conquering hero, not a fragile pawn susceptible to foreign interests. This, however, was an unmistakably
big
deal. The enormity of the moment even compelled some strategy committee members to stash away the documents that came out of the meeting for posterity and safekeeping.