Dethroning the King (50 page)

If the deal had come together just one week sooner, it might have actually happened, one Anheuser advisor said. “I bet they drive themselves nuts with that question. But it's hard to criticize a $15 billion transaction that from birth to execution took three weeks. Saying they took too long is kind of Monday morning quarterbacking.” Furthermore, Anheuser's board might have decided to reach out to InBev for a higher offer no matter when the Modelo transaction had to grown ripe.

The deal's failure was rough for Carlos and María, who met with a big group of other controlling family members that weekend to discuss why things didn't pan out. And as blame was distributed on Anheuser-Busch's side after the fact, some of it fell upon Goldman Sachs's shoulders. Goldman's team had negotiated the transaction and vocally supported it at times in the boardroom. Rival bankers immediately surmised that Goldman had intended to sell Anheuser-Busch all along, however, in order to win bigger banking fees.

“I've got to tell you, I've seen this movie before,” said one banker at a rival firm. “I know the modus operandi. This is something I've been saying for I don't know how many years. You want to get sold? Hire Goldman Sachs. At the end of the day, Goldman was never going to be able to deliver this deal because they didn't want to deliver this deal.”

“I think Goldman thought they'll do the Modelo deal, and then they'll do another deal down the road,” said another competitor. “They thought they'd get two things out of it.”

Ultimately, however, the decision about whether to sign Modelo up that day wasn't up to Goldman Sachs, Citigroup, or any of Anheuser's other advisors. It was up to the board. And the board's choice was quite simple. Modelo came with lots of execution risk, and it gave them no way to fix one of the company's key problems: a CEO and management team who had proven lackluster. The board could endorse a risky plan to buy Modelo and integrate the two businesses, or it could shunt Modelo into a holding pattern and see what InBev had to offer. They had known that Modelo wasn't likely to walk away during the short time in which they waited for a higher bid from InBev—Anheuser-Busch, after all, had the big checkbook.

“It's a simple discussion: shareholder value,” said board member Jim Forese. “We didn't get confused. Which is why the independent board decided, not the family members or the management.”

“We made the decision, not August Busch III. He had his views, but he was just one member of the board, and he was not an independent member of the board,” he said. “We concluded that the overall risk, including Modelo, was perhaps not worth the returns given that we could get $70 per share. It was all about the economics.”

The board's gamble worked. They never had to find out whether their dalliance with the Mexicans would have yielded a successful defense. “I don't to this day know whether InBev knew how serious we were about trying to do Modelo,” Sandy Warner said.

“So much time and effort was spent on the whole Modelo side of this—it was almost like the secret plan to get out of Vietnam,” said one Anheuser-Busch advisor. “It was going to be this trump card we could play whenever we wanted to prevail.”

“If the Modelo deal had happened, this company would not have been sold,” said another. “We could all wonder whether the stock would be higher or lower today, but if the Modelo deal had happened, I can state with absolute certainty—100 percent confidence—that it would not have been sold to InBev.”

“The more those risks were laid out, the more it made it almost impossible to pursue one angle that had so much risk versus another angle that didn't have much risk at all,” concluded another.

—Advisor to Anheuser-Busch

 

 

 

A
nheuser's verbal acceptance of an offer sprang both sides into action, and the two companies started cranking away almost immediately on the deal's specifics. Merger agreements can take weeks, if not months, to draft and negotiate. However, Sullivan & Cromwell attorney George Sampas had been racing to fine-tune a detailed merger document all along, just in case Anheuser-Busch capitulated earlier than they had expected.

Sampas sent a draft merger agreement over to Anheuser's lawyers at Skadden on Thursday, and on the morning of Friday, July 11, hordes of advisors from both sides descended on 375 Park Avenue, the imposing steel skyscraper that housed Sullivan & Cromwell's midtown Manhattan conference center. InBev alone had about 50 lawyers camped out onsite, who, after first prepping their materials on Thursday at the firm's main office downtown, started scurrying back and forth between the uptown conference center's carpeted rooms and were soon buried in documents. August IV was destined for Park Avenue that Friday morning as well, but his mindset was decidedly less enthusiastic. His role as chief executive of Anheuser-Busch—which had already been diluted by his father, by his board of directors, and by his own lack of professional vigor—was verging on extinction. The Fourth was scheduled to meet face-to-face that day with Brito, his business partner-turned-foe. It would mark the first time the two men had seen each other in person since rumors of the takeover bid erupted in late May, and it would probably represent The Fourth's last chance to dictate the fate of his own career and those of his colleagues.

The Fourth and Pedro Soares stepped out of their jet in Teterboro, New Jersey, and settled into a car for the traffic-clogged 12-mile drive to Sullivan & Cromwell's conference center, which was spread across half of the eighth floor of the Seagram Building. It was the same building that housed the Four Seasons restaurant where August IV had dined a year earlier with SABMiller chief Graham Mackay, back when Anheuser-Busch's options had looked wide open. Peter Gross, who had been touching base with Soares intermittently to track The Fourth's progress toward Manhattan, stood waiting to meet the pair as they strode across the steel skyscraper's granite outdoor plaza and toward the lobby entrance. They were an hour late.

“August, how are you?” Gross asked as The Fourth finished up a conversation on his cell phone and switched off his earpiece. He had eschewed his favorite green suit and cowboy boots that day in favor of an East Coast suburban commuter look: a simple button-down shirt and pair of dress pants. The Fourth shot Gross a look in response to his loaded question that made it clear it had been a rough day.

“You know, look,” Gross said, hoping to reassure his client and friend. “You're obviously playing an important role here.” He had hoped that seeing a familiar face might ease The Fourth into the right mindset for what was bound to be a difficult encounter upstairs. The Fourth needed to act as an ambassador for Anheuser-Busch as it approached the end of its run as an independent entity. While he had seemed detached and checked out at times during the past few weeks, he seemed, to his credit, to know what he needed to do that day.

Gross spent a few moments arming The Fourth with the points he needed to emphasize. He needed to make it clear to Brito and InBev's lawyers, who were pushing for more flexibility and less risk in the merger contract, that Anheuser-Busch wasn't going to budge. With that established, the men swung through the building's revolving doors.

Security was heavy at 375 Park Avenue, particularly in the wake of the September 11, 2001, attacks on the World Trade Center downtown, and visitors were required to check in at a security desk in the lobby with proper identification. InBev, on the assumption that August IV might be distressed upon arrival, had Sullivan & Cromwell pull a few strings to ensure that he could reach the elevators without being interrupted by a team of muscle-bound bouncers in mid-stride. The law firm had told its lobby attendants that someone would arrive at that allotted time who was too important to be stopped for identification. August IV certainly wasn't asked for his driver's license in St. Louis, where his recognizable face was plastered on billboards and in the newspaper, and InBev figured it was only right to remove a few administrative hurdles for him in New York. So The Fourth and Soares walked right past security and toward the building's elevator banks for the ride upstairs.

As the elevator's doors opened onto the eighth floor, Anheuser's team was pointed toward a conference room where Brito was stationed. August IV nodded toward his colleagues and then headed back to the room alone.

The Fourth was cognizant when he first greeted Brito of the points Gross had stressed. There was another important task at hand, though, and he aimed to address it before momentum was lost. He wasn't about to leave his subordinates hanging out to dry in the merger, with their professional futures subject to the impressions of strangers who lived half a world away. The Fourth's own fate was secure. He was already rich, and his advisors and lawyers were working up a lucrative consulting deal at that very moment that would last at least a few years and probably give him a seat on the merged company's board. If there was one last thing he could do to salvage potential losses, it was to lobby on behalf of his colleagues, some of whom had spent their entire careers at Anheuser-Busch and were now staring into a foggy abyss. Within minutes of entering the room, August IV had Brito hunkered down with him at a boardroom table, ticking through photographs of Anheuser's top managers as they discussed the merits of each executive.

“I think August went in there, quite frankly, to try and go to bat for members of the management team to highlight their skills and ability,” said one person close to the matter. The Fourth wasn't overly optimistic about what the result would be. He made it clear, however, to Anheuser's advisors and to Brito that he was going to do what he could.

The Fourth and Brito spent about four hours together, perusing Anheuser-Busch's lineup and talking about other matters. They were cordial and respectful. “It was clear to everyone what had happened and who was taking over whom, and there was no reason for Brito to gloat,” said a person who was there that day. “I think August was doing his very best to put up a good face.”

The Fourth's remaining meetings on Friday were relatively procedural. By the time he had arrived at 375 Park, a raft of bankers, lawyers, and executives from both sides were already running at full tilt at the law offices to negotiate the merger agreement. If they could get it done and approved by both companies' boards by Sunday night, InBev could announce the deal either late that night or on Monday morning to gain maximum exposure before the European and U.S. stock markets opened for the week. Knowing that their respective teams were about to head into a long weekend of negotiations, August IV, Gross, Ingrassia, and Soares sat down to stress a few key points in Anheuser's favor to Brito, Lazard's Antonio Weiss, and J.P. Morgan's Doug Braunstein.

The minute that box was checked, August IV clocked out. InBev's public relations team had asked for a quick photo shoot of the two CEOs smiling and shaking hands to symbolically close the deal. It would send the right message to both companies' workers, they argued—and of course, it would give InBev an image it could circulate around the world as proof of Anheuser-Busch's capitulation. The Fourth refused to agree to the photo, and with that, he was gone.

It was a rough day, perhaps the worst of his life. Just 19 months before, he had been named CEO of one of America's most prized companies. His work at Anheuser-Busch was a big part of how he defined himself, and the same went for the team of executives who had ascended with him, some of whom were close comrades. This had been their opportunity to make an impression—to build the company into a global powerhouse—and they weren't going to get the chance. Even worse, the city of St. Louis would suffer for it.

“I think it weighed heavily on him that he was the guy in the seat at the time this went down, despite the fact that little of this coming to pass was on his shoulders,” said one of the company's advisors. “I think he was very conscious of what this meant for St. Louis and for all of the other employees, and I think it probably weighed very heavily that on his watch, this happened.”

After those difficult few hours with Brito, The Fourth headed back to the airport to catch a company plane to St. Louis that evening. He wasn't eager to stay in New York any longer than he had to. His deputies and advisors could pick up the slack. From that point through until early Monday morning, as Anheuser's lawyers, bankers, and a few top executives burned the midnight oil to complete their negotiations with InBev, The Fourth receded into the shadows in St. Louis and played essentially no role in the discussions in New York.