The information was attributed to unidentified "sources with a close knowledge" of the deal, but the details were so specific there was little doubt as to the accuracy. The article named the various investment bankers involved in the financing package and said that InBev had approached August IV "informally last October, but [he] insisted he would protect Anheuser"s independence and wanted time to show his mettle at a job to which he had only recently been promoted."
The story broke on the Friday morning leading into the Memorial Day weekend. By the time the markets closed, A-B stock had shot up by 8 percent to a record $56.61. A-B management made no official public statement regarding the Financial Times" story, but during the day August IV sent a memo to all employees urging them to stay focused on their jobs. "We can"t control rumors or speculation," he said. "But we DO control our growth strategies and how we operate our business. It is our job to conduct our business in ways that will keep the company strong, profitable, and growing."
In a defiant flourish that sounded like something his father would say, he added, "Some of our compet.i.tors would like nothing better than to see Anheuser-Busch get distracted by rumors over the holiday. They underestimate us."
Out at Belleau Farm in St. Peters, Missouri, the Fourth"s uncle, Adolphus Busch IV, read the Financial Times story with interest and concern. As the owner of a substantial amount of A-B shares and a financial partner in a large A-B distributorship in Houston, he"d been frustrated for some time with the lackl.u.s.ter performance of the stock. Now, apparently, the A-B board was about to be offered a 34 percent premium on the going price of the shares, and his nephew had already said no. How could he do that?
Adolphus knew A-B had little defense against a serious takeover attempt. The Busch family owned less than 4 percent of the stock, not enough to swing a decision one way or another even in the unlikely event that they all agreed on which way to go. In the past few years, the company had dropped its so-called poison pill provision, which allowed stockholders to buy new stock at a discount in the face of a takeover threat, thereby making an acquisition more expensive for an unwanted suitor. In response to shareholder pressure, the board also had done away with "staggered" elections whereby only a third of its members stood for reelection each year. So now an unfriendly suitor could nominate a new slate of candidates and replace the entire sitting board at a single shareholders" meeting.
Adolphus thought $65 per share was a h.e.l.l of an offer. He couldn"t imagine the current directors turning it down. They"d risk spending the next five years in court defending themselves against shareholder lawsuits. So what was the Fourth doing with that "not on my watch" comment? Over the Memorial Day weekend, he put in several calls to August III and August IV to see what was going on. August III didn"t respond, and when the Fourth finally got back to him, his description of the plan for fighting the takeover seemed disconnected from the urgent reality. He said he was confident his management team could build more shareholder value than InBev could offer by improving profitability and stock performance through a cost-cutting program code-named Blue Ocean that would eliminate more than half a billion dollars in spending over the next two years.
"That sounded like bulls.h.i.t to me," Adolphus said recently, "and it told me that they really didn"t have a plan." On Monday, May 26, he contacted David Kesmodel, the Wall Street Journal reporter who"d been covering the story, and told him that, contrary to what his nephew had said, some members of the Busch family were open to merger discussions with InBev. "There are members that absolutely want it to stay status quo," he said, "and there are others that say they want to see some kind of chance to enhance shareholder value."
The next morning it became obvious that the Fourth had committed another unforced error. He"d given a phone interview to the Wall Street Journal several weeks earlier in which he"d spoken a little too freely. The result was an article in which he seemed to make the InBev story all about him. "Anheuser CEO Fights for His Legacy," the headline read. "As Rival Weighs a Bid, Busch Heir Still Seeks Father"s Approval." In what functioned as the company"s first public response to the Financial Times revelations, the Fourth"s every quote dealt with his father and their troubled relationship:
"I never, ever had a father-son relationship," he said. "It"s always been purely business."
His transition to CEO had been "a very difficult, fluid situation," he said, because he and his father had clashed over issues ranging from his choices for his executive team-"If I can"t have my team then how can you hold me accountable?"-to his scuttled plan to buy the juice beverage manufacturer Hansen Natural Corp. for $7 billion-"He had a big problem with us venturing outside of the beverage beer company."
"He could sell ice cubes to the Eskimos," he said of his father. "He"s brilliant and he has so much to offer, [so] long as when he offers it, it comes as advice instead of orders. It"s kind of a fine line."
Claiming that August III and Gussie went without speaking to one another for ten years before they finally mended their relationship, he expressed confidence that his father"s "love and respect" eventually would come "when I"m ultimately successful." Then he added poignantly, "I honestly do believe if I failed in my professional life, it would be much harder for me to ever gain his respect."
However touching, his comments were not the sort of response the brewing industry, the citizens of St. Louis, or the financial community had expected from the CEO of the $19 billion company. They made him look emotional and weak. His father surely was livid. No one could say whether it was due to this one incident or an acc.u.mulation of things, because August III would never say, but relations between the two soon turned so cold they chilled any room they were in together. From then on, the Fourth was on a tight leash.
The board instructed him to send an e-mail to Jorge Lemann seeking clarification about the news reports. Lemann took several days to respond, claiming he had been traveling. They agreed to meet in Tampa on June 2. Some board members worried about sending the Fourth to Florida alone, so several coaching sessions were conducted to make sure he knew what to say and what not to.
The preparation was all for naught, however, as the meeting with Lemann and his longtime investing partner Marcel Telles lasted no more than 10 minutes, during which time the two men politely declined to confirm or deny that InBev was preparing a takeover offer. Back in St. Louis, the board concluded that there was nothing to be done but wait; either a bid would come or it wouldn"t.
It came nine days later, on June 11, in the form of a letter from Carlos Brito to August IV, faxed to the Fourth"s office at the soccer park and copied to the board.
Dear August,
Over the past several years we have met with you on many occasions to explore ways in which we could deepen the relationship between our two great companies. Jorge Paulo Lemann and Marcel Telles greatly appreciated your taking the time to meet with them on the 2nd of June in Tampa. During the course of that meeting you asked whether we had a formal proposal to make to you and your Board of Directors regarding a potential combination. Although we did not put forward a specific proposal at the time, I am now writing to provide you with proposed terms.
As foretold by the Financial Times, InBev"s offer was for $65 a share, a total of $46.35 billion in cash. Voicing "the highest respect for Anheuser-Busch, its employees and leadership, as well as the generations of investment that have created the Anheuser-Busch brands, particularly the iconic Budweiser brand," Brito put forward a string of a.s.surances:
We would position Budweiser as our global flagship brand.... We would envision making St. Louis the headquarters for the North American region and the global home of the flagship Budweiser brand.... We would seek to re-name our combined company to evoke the heritage of your key brands.... We will maintain all your existing breweries.... We will continue your strong commitment to the communities in which you operate.... We would invite a number of your directors to join the board of the new company.... We would hope to retain key members of the Anheuser-Busch management team at all levels of seniority.
As one writer put it, Brito "did everything but hand-deliver chocolate and flowers."
It didn"t matter. The minute A-B revealed the content of Brito"s letter, howls of protest went up from politicians, pundits, and just plain folks. "I am strongly opposed to the sale of Anheuser-Busch, and today"s offer to purchase the company is deeply troubling to me," said Missouri governor Matthew Blunt. Vowing she would "do everything in my power" to prevent an InBev takeover, Missouri"s Democratic senator Claire McCaskill sent a letter to the A-B board urging members to reject InBev"s offer in consideration of "what this great and profitable company represents to St. Louis, the state of Missouri, and the rest of America." Her Republican counterpart, Missouri Senator Christopher "Kit" Bond, couldn"t help boasting that he had told Carlos Brito to his face, "This Bud"s not for you."
Even Democratic presidential candidate-and sometime Bud Light drinker-Barack Obama got pulled into the political posturing when his campaign plane was temporarily grounded at the St. Louis airport due to a mechanical problem. Responding to reporters" questions, the Illinois senator said it would be "a shame" if Anheuser-Busch was sold to a foreign company. "I think we should be able to find an American company that is interested in purchasing Anheuser-Busch, if in fact Anheuser-Busch feels that it is necessary to sell."
"Could anything symbolize America"s loss of economic supremacy more clearly than for its favorite beer to fall into foreign hands?" asked the London-based news magazine the Economist, adding snarkily, "Hitherto, Budweiser has been at the forefront of the Americanization of the world, often to the dismay of foreign drinkers of traditional beers who regard a Bud as a gla.s.s of water wasted."
In the United States, a Web site called Savebudweiser.com urged Joe and Jane Sixpack to jump onto the jingoistic bandwagon, calling on Bud lovers to "band together as one voice and try to save more than just our beer. We don"t want another American icon turned over to a foreign company." Another Web site, SaveAB.com, was launched by Missouri governor Blunt"s former chief of staff, Ed Martin, who promised to stage anti-InBev rallies inside Busch Stadium. "Selling out to the Belgians is not worth it," Martin said, "because this is about more than beer: it"s about our jobs and our nation."
The strongest reaction to the news of InBev"s offer came from the citizens of St. Louis, many of whom were surprised to learn that the Busch family didn"t own, or at least control, Anheuser-Busch. The Busches had always acted as if they did. How else could the kid with all the legal problems have ended up in charge?
St. Louisans could be excused for not buying Carlos Brito"s a.s.surances that nothing bad would happen as a result of an InBev buyout. They"d heard that kind of talk before, most recently in 2001, when Swiss-based Nestle acquired St. Louis"s Ralston Purina, and in 2005, when Cincinnati-based Federated Department Stores bought the May Company, which operated the city"s beloved Famous-Barr department stores. In both cases, the hometown headquarters soon disappeared, along with the jobs they had provided for decades.
"St. Louis has gotten to the point where we have the brewery and the Cardinals-that"s it," complained the owner of a restaurant across the street from the brewery. "This is a brewing town, and [A-B] is the last jewel in the crown," said a city worker sitting in a small South Side bar called Crabby"s. "If this deal goes through, I won"t be buying their beer."
A writer for the Kansas City Star succinctly summed up St. Louis"s reaction: "It"s about hometown pride, purpose, ident.i.ty-in the face of a soulless global economy."
Back in Adolphus Busch"s time, St. Louis had been the fourth-largest city in America, behind New York, Chicago, and Philadelphia. Time magazine called it "the midwestern city with an Athenian heart, valuing music and philosophy, nurturing a great university [Washington U], birthing poets [T. S. Eliot, Maya Angelou] and hosting, in one zenith year, both the World"s Fair and the Summer Olympics." Unfortunately, as Time pointed out, that zenith was in 1904. Subsequently hit hard by Prohibition, the proud "Fourth City" and onetime brewing capital never fully recovered, though the population kept growing until the 1960s, when white flight to the surrounding suburbs began eroding the tax base. From then on, it seemed as if every time St. Louis made the national news, it was in a story about urban decay, inner-city violence, or racial unrest. As Time said, "No city in America has slid so far, nor with such dignity."
Through it all, Anheuser-Busch had remained a constant, the city"s cla.s.siest act, spreading its wealth across the community through charitable donations-a reported $10 million in 2007-and contributions to civic development projects and cultural events. "Anheuser-Busch is so much a part of life at all levels of society that you can hardly walk into a public building without finding "Anheuser-Busch Hall" or the "Anheuser-Busch Conference Room,"" said Dan Kopman, the cofounder of Saint Louis Brewery, maker of the locally popular Schlafly brand. Even St. Louisans who preferred Heineken or hated beer felt a flash of pride every time a voiceover at the end of a Bud or Bud Light commercial intoned, "Anheuser-Busch, St. Louis, Missouri."
On June 26, fifteen days after receiving Carlos Brito"s letter, the A-B board unanimously rejected InBev"s proposal as "financially inadequate and not in the best interest of Anheuser-Busch stockholders."
A-B"s written response was friendly, respectful, and firm. "From your standpoint, we see that now could be an opportunistic time for you to make this acquisition, given the weak U.S. dollar and sluggish U.S. stock market," it read. "From the standpoint of the Anheuser-Busch shareholder, however, a transaction with InBev at this time would mean forgoing the greater value obtainable from Anheuser-Busch"s strategic growth plan." The letter ended with what appeared to be a personal aside from the Fourth. "As you say yourself, you dream big. We respect your desires to grow your company, but your growth should not come at the expense of our stockholders."
The rejection kicked off an increasingly tense back-and-forth, with both sides invoking the "interest of Anheuser-Busch shareholders" the way U.S. politicians carry on about "the will of the American people." InBev quickly moved to oust the A-B board, putting forward its own slate of candidates, including Adolphus Busch IV, whose statement to the Wall Street Journal about being "open to discussions" with InBev was widely interpreted in the media as evidence of a Busch family feud. Adolphus had subsequently come out in favor of InBev"s $46 billion offer, saying that Brito"s a.s.surances had satisfied his concern about preserving the legacy of the company. "A possible merger is not a family issue," he said. "It is strictly a matter of shareholder value."
His youngest brother Andrew promptly released a statement supporting August III and August IV. "I for one trust the current A-B board to put A-B shareholders first," he said, "and have no reason to think that InBev"s proposed board members will have the same devotion to shareholders" interests."
The differences between the two stemmed more from their partnership-along with their brother Billy-in an A-B distributorship in Houston that strained relations among all three of them, but mostly between Adolphus and Andrew, who had rarely spoken in recent years. Other Busch family members were more ambivalent about the potential InBev buyout, and their opinions were evolving rapidly.
"When I first heard there was an offer from Carlos Brito, I was against it," said Billy Busch recently. "The company had meant so much to me and my family, there was so much pride and history involved, that I didn"t want to see it go. I thought August IV was just going to have to raise himself up and turn it around somehow. But then I started thinking about it, and as much as I hated to see it go, my business sense told me that maybe this was the time."
It helped that Billy held a large amount of stock, in fact, more than any of his siblings. "I was the only one who never sold any," he admitted. "I guess that"s because I remembered that my dad never sold a share in his life." Since each of the Grant"s Farm children inherited 400,000 shares that had since split two-for-one twice, Billy now stood to make more than $100 million on a sale to InBev.
It was generally agreed that the A-B board had only one play to make if they wanted avoid the takeover, and that was to acquire the half of Mexico"s Grupo Modelo that A-B didn"t already own. Such a merger would add anywhere from $10 billion to $15 billion to the value of the company, possibly making it too expensive for InBev to swallow. InBev claimed to have secured $40 billion in financing, mostly from European banks. But the worldwide recession of 2008 was in full swing, and credit was becoming increasingly hard to come by.
The Modelo gambit was a long shot, however. Since 1993, A-B had invested more than $1.6 billion in the brewery, gradually acquiring a 52 percent noncontrolling interest. But the partnership had been an uneasy one, and August III was not exactly beloved by the five Mexican families that controlled their country"s largest brewery. Because the Fourth had formed a relationship with Modelo"s forty-one-year-old CEO, Carlos Fernandez, he and his strategy committee were a.s.signed the task of trying to negotiate a merger agreement. The Fourth saw it as a last chance to redeem himself, and friends say he got caught up in the idea that he could save Anheuser-Busch for the city, the shareholders, and his family the way his grandfather Gussie had saved the Cardinals. If he pulled it off, he would be the hero of the story, and not held accountable forever for letting the dynasty go down on his watch. He might finally win his father"s respect.
Over a period of several weeks, the Fourth and his team hammered out an agreement whereby A-B would pay $15 billion for the remaining 48.5 percent of Modelo and Carlos Fernandez would be named CEO of the merged company, which would be called Anheuser-Busch Modelo. But the A-B board balked at the idea. As much as they believed that Fernandez would be a much better CEO than August IV, they didn"t want to pay a premium for Modelo and at the same time appear to turn over control to the Mexicans. They thought that would surely invite shareholder lawsuits. As August III said, "I don"t want to spend the rest of my life in depositions."
"I was with the Fourth at his house the night they told him they weren"t going to do the Modelo deal and were probably going to sell to InBev," said one of his confidants. "He was devastated."
The InBev deal was sealed when Brito, concerned that A-B might go with Modelo if he didn"t sweeten the pot, upped his bid to $70 a share, for a total of $52 billion. That would make it the largest cash transaction in the history of American business. It was an offer too big to turn down.
On November 8, four days after the election of Barack Obama, Anheuser-Busch shareholders voted to approve InBev"s offer and the company surrendered its century and a half of independence, officially becoming Anheuser-Busch InBev, or ABI for short. Two days later, ABI announced the layoffs of 1,400 employees, 1,000 of them in St. Louis. Two weeks after that, the company told its suppliers that, in keeping with InBev"s traditional practice, they would now have to wait 120 days to be paid, rather than the 30-day basis on which A-B historically had paid.
In the months that followed, ABI divested itself of more than $7 billion in a.s.sets, including Busch Entertainment, which operated its theme parks, Busch Gardens and SeaWorld. The division that had sprung from Gussie"s pa.s.sion for colorful, exotic birds was sold for $2.7 billion. The new Brazilian overlords cut back on sports sponsorships, such as the LPGA golf tournament in Williamsburg, Virginia, and reduced charitable contributions in the local community, notably the traditional donation to Gussie Busch"s old American Legion post. A company retirees" group that for years had met at the brewery and enjoyed free beer was now asked to pay for both the room and the rounds. Fourteen of the company"s top seventeen executives left, most of them as very rich men. The Fourth"s payout amounted to more than $100 million, including $120,000 a month in consulting fees and a full-time two-man security detail for three years.
At the same time, the new management announced internally that henceforth salaries would be set at 20 percent below the market rate; that contributions to the pension plan for salaried employees would eventually be frozen; that office trashcans would be emptied only on Mondays, Wednesdays, and Fridays; and that personal plants would not be watered at all. There would be no more first-cla.s.s travel; BlackBerry cell phone service would be severely curtailed. Management even began posting a sort of shaming list of employees who tipped the most, stayed in the most expensive hotels, or spent the most on cab fare.
The slew of cost-saving directives wreaked havoc on morale among longtime employees who had previously taken pride in working for St. Louis"s flagship employer. "Now it"s like working for a bunch of accountants, real hard-a.s.sed accountants," said one. The biggest blow to employee pride may have come the day the work crews arrived on the ninth floor of the administration building, where the plush decor of the executive offices created a feeling of abundance and prosperity, signaling that all within were a special breed. August had built the building and had it decorated to his taste. Gussie had praised him for it, saying, "It"s a fine building, son. You should be proud." But to a cost-obsessed Carlos Brito, the private offices must have seemed anachronistic, extravagant, and dangerously inefficient. His work crews quickly gutted the entire ninth floor, turning it into an austerely functional open-configuration works.p.a.ce with desks stretching from wall to wall; it looked more like an Internet startup firm working through its first round of venture capital funding than a company with a storied history dating back to the Civil War. If Gussie had lived to see it, he might have dropped dead on the spot. The St. Louis Post-Dispatch quoted a twenty-one-year company veteran as saying of the makeover, "The message from InBev is, "If you don"t think we are serious [about cost-cutting], then just look at what we are willing to destroy.""
There was still one final act of destruction to come, however.