Dethroning the King (3 page)

Anheuser-Busch had been operating in a state of fear for months—everyone knew it was vulnerable to a takeover. By jumping into bed with the aggressive and growth-hungry InBev, even just on a deal to distribute its beers in the United States, he felt his son was asking for trouble.

“They've gone ahead and done this deal,” fumed August III, who had strenuously opposed the joint venture. Anheuser-Busch was slipping out of his control, even with his own namesake in charge. “We're running scared, and here we are now doing a deal with these guys. We've let them inside the tent!” His hunting guests stared uncomfortably at their shoes, toeing the carpet, as the plantation's wait staff looked on in astonishment from the kitchen.

August III then shifted tack and blasted his son's courtship of Wall Street. By stocking what should have been a private meeting in Mexico with so many bankers, who had connections not just to each other but also to Anheuser's competitors and investors and the media, August IV had chummed the waters in a way that was bound to attract sharks, he contended. His protestations were so forceful that it seemed they would be heard in nearby Tallahassee, where his daughter and her husband ran a beer distributorship.

The last time August III had become so unglued over a threat to Anheuser-Busch had been in 1991, when President George H.W. Bush violated his “no new taxes” pledge and raised the excise tax on alcohol. August III thought he had played all his cards right: It was a Republican administration, one Busch family knew the other set of Bushes, and he and George W. Bush, the president's son, had even owned Major League baseball teams together. Those connections still weren't enough to keep the president from doubling the tax on a six-pack of beer overnight.

“All you did by bringing those bankers in there was send a telegraph wire out to InBev that you're ready to be taken over,” August III snapped that day in the plantation house, turning in contempt toward the executives who stood off to the side to distribute some of the blame.

“You're putting up a FOR SALE sign. You're giving away too much information. All you did was get everybody in the world to sharpen their knives!”

He finally cooled off enough to head into the plantation's private reserve for the hunt, but the tirade had unnerved the group. They were already concerned that Anheuser-Busch had been left behind as its rivals ballooned in size. Life had been tense at headquarters for months, and everything came into stark relief that morning when they saw the worry and fear that flashed across August III's face.

“His point was that this is the beginning of the end, because now you guys opened Pandora's Box,” said one member of the hunting group. “So while we thought maybe we were doing our due diligence, and I'm sure companies do this all the time, he said, ‘You guys just brought this on yourselves.' ”

—Anheuser-Busch executive

 

 

 

W
ednesday, June 11, 2008, was forecast to be hot and sticky in St. Louis, with afternoon temperatures rising well above 80 degrees. None of the Anheuser-Busch executives who pulled into the parking lot of the soccer park in Fenton that morning expected to see much sunlight for the next 48 hours, however. After several decades of overpowering domination of the U.S. beer market, and a history of independence that stretched back more than 150 years, the company was under attack.

Anheuser's top staffers met often at the soccer park, one of several sites the company owned that were scattered around St. Louis. The Busch name was plastered all over town, in fact, on everything from the beer billboards that lined the city's highways and bus shelters to the plaques that marked some of its best-loved recreational sites. The St. Louis Cardinals professional baseball team had called Busch Stadium home since 1953. Parents had been shuttling children for years to Grant's Farm, the Busch family ancestral home turned free-admission zoo. Students at St. Louis University congregated at the Busch Student Center, and visitors to the August A. Busch Conservation Nature Center in St. Charles, just outside the city, could even blast shotguns at the August A. Busch Shooting Range.

Less than three weeks earlier, the newspapers had picked up on something that prompted Anheuser-Busch to draw its own arsenal. Global beer giant InBev, the papers said, was preparing to lay siege to Anheuser with an unwanted $46.3 billion takeover bid.

Nothing was clear yet; InBev hadn't actually made a formal offer. The concept alone, however—and the fact that details in the newspaper reports were so explicit—set people afire at Anheuser's headquarters. Few companies on earth were more evocative of America, with all of its history and iconography, than Anheuser-Busch. Despite the forces working against it, from brewing rivals to alcohol tax - wielding politicians, the company had somehow made itself—and its key brand, Budweiser—as ubiquitous a part of American life as firecrackers and apple pie. If InBev decided to pounce and its takeover effort was successful, the glittering shrines Anheuser had built to itself in St. Louis could come crashing down, along with its supremacy as America's beer brewer of choice.

Most of America seemed to have never even heard of InBev. The company had grown from a tiny Brazilian brewing outfit into a globe-spanning megalith in an incredibly short period of time by normal business standards. InBev was now based in Belgium, but it was run by an intense, hard-charging group of Brazilians who had consistently gotten what they wanted as they pushed their company further and further up the list of global corporate powers. There could hardly be a more dramatic counterpoint to the gold-plated, history-laden Anheuser-Busch than cold, number-crunching InBev.

Arrogance and denial made some Anheuser-Busch executives believe that despite the missteps they had made over time, a takeover would never happen. The company—once the world's top brewer—had slipped into fourth place because of the insular, America-centric strategy it had espoused in recent decades, and it now appeared vulnerable. Its corporate planning committee, though, had repeatedly run the numbers and determined that Anheuser-Busch was simply too expensive to buy. The concept seemed too illogical to entertain. How could Budweiser, a beer synonymous with American culture, ever be brewed by a Belgian juggernaut whose executives spoke Portuguese at the office? It was unthinkable.

As days ticked by with no official bid from InBev, sentiment among Anheuser staffers at headquarters arose that this was, yet again, just another one of the rumors that artificially boosted the company's stock price every few months. It was summer lightning, they thought—all flash but no rain. Still, something felt different this time. One newspaper report had included not just the price InBev was planning to offer but even the code names its Wall Street bankers were using for the project. A few members of the strategy committee—the 17 executives who mapped out Anheuser-Busch's future—were plagued by an ominous feeling about the whole thing.

Robert “Bob” Lachky, a well-liked executive who was famous in America's marketing circles for green-lighting Anheuser's “Wassup?!” ad and the Budweiser frogs, reacted at first to the takeover rumors with a defiant charge of energy. No bid from InBev had actually materialized, he reasoned, and even if one did, surely a company that pulled the kind of weight Anheuser-Busch did could fend it off. However, a conversation with one of his mentors—a former company executive—over the Memorial Day holiday weekend had abruptly spun him in the opposite direction.

“It's done. You're done,” his former colleague had said.

“Come on, man, we can fight this,” Lachky shot back, startled by the man's conviction.

“You're done,” his mentor repeated determinedly, explaining that much of Anheuser's stock was owned by struggling pensions and hedge funds that would gladly take InBev's money. The markets were in the tank, and a bid from InBev would lock in badly needed gains for anyone who owned the stock. “This is a real offer. There's such sentiment right now that's going to be used against us,” he said. “The fact that we're going to be forced to listen to it means that we're in, we're done.”

In a way, some staffers were relieved to hear that InBev's long-rumored bid was on its way. “Maybe this is actually a good thing,” they thought. “It's finally out in the open. We're in play now.” Anheuser-Busch had been rumored as a takeover target for years, and battling the persistent speculation had been frustratingly distracting. Now, the company would know exactly which shark in the water was scouting an attack and how much it thought the company was worth. The takeover reports had already boosted the price of Anheuser's stock, which had gone nowhere since 2002, by more than 8 percent. If Anheuser could arm itself with the right data, it might even be able to convince investors it was worth more than InBev thought. The company was just starting to get back on its feet again after several rough years.

Positive thinking was only going to go so far, though, for a company that had done almost nothing to protect itself from the increasing threat of a takeover. Some sort of big change was starting to look inevitable. “The scenario you all hope for is that you can beat them off with a stick and be okay,” said Lachky. “But you knew darn well they were going to come back again. This is a matter of time. They're either going to get us now or they're going to get us later.”

Fear of the unknown had caused significant fissures within Anheuser-Busch since the reports of InBev's interest first hit. Staffers had been huddling in each others' offices at Anheuser's headquarters, which were perched on a sloping hill just west of the Mississippi River, for muffled but fervent debates about whether they'd all still be standing there in a year's time.

The company was refusing to comment on the rumors, in part because there was no actual bid on the table. How could it respond when InBev hadn't actually stepped forward to confirm or deny its interest? Still, that wasn't enough to appease the rank and file, who increasingly suspected that top executives knew more than they were letting on. The vacuum of information was causing a real credibility problem.

Douglas Muhleman, head of the company's brewing operations, faced a particularly frustrating quandary. Brewery workers were looking to him for answers, as their boss and as a member of the agenda-setting strategy committee. The fact was, he and the rest of the committee had little more information than their subordinates did about whether they were actually being hunted.

During a routine visit to the company's brewery down in Houston, Muhleman stood in front of several successive shifts of workers and did his best to calm the crowd as indignant employees ranted about the lack of information. The brewery's frustrated floor staffers, who weren't bound by the decorum that dampened criticism higher up the food chain, were getting hot under the collar. Hadn't they already been slashing costs for a year to make the company more competitive? And what did the Busch family think about all this? Didn't they control Anheuser-Busch?

“Guys, I'm down here and I'm trying, but I'm telling you I don't know anything,” Muhleman said, looking out over a roomful of suspicious stares.

There had long been an unspoken assumption that it would be impossible for another company to buy Anheuser-Busch without the approval of Anheuser's domineering patriarch, August Busch III. August III, who was often called “The Third,” was no longer CEO, having stepped down from active management six years earlier. His imposing presence on the company's board of directors, however, was still seen as a significant deterrent to would-be buyers.

The notion that Anheuser-Busch was actually controlled by The Third and the rest of the Busch family, though, was a commonly held misperception. The Busches were all bark and no bite from a financial perspective. They owned only 4 percent of the company—less than billionaire investor Warren Buffett, Anheuser's second-largest shareholder. The family still wielded a great deal of influence, and August III's son, 43-year-old August A. Busch IV, was now the company's chief executive, but they had nothing in their wallets to back themselves up.

“They were just the titular heads of this company,” said one former executive. “They didn't have control. It was like a monarchy in Great Britain. These guys really didn't have the authority to do anything.”

The people of St. Louis, where Anheuser-Busch had been based since it was founded, could be forgiven for forgetting that. Residents there were emotionally tethered to Anheuser-Busch despite how antiquated and paternalistic the company and its ruling family had started to look in comparison to the world's other leading corporations. It wasn't just August III and August IV whose names and faces wall-papered the town. There were so many Busches in the area that an online search of the city's phone directory for the last name “Busch” elicited an exclamation from the computer: “Whoa! Over 100 results found.” Some Busches were more notable—or notorious—than others. All who were part of the brewing clan knew what it felt like to be important. “They've always considered themselves as part of a special class of people, and they were treated as such,” said one former Anheuser-Busch executive. “They were treated like royalty.”