Dethroning the King (4 page)

When Anheuser's top executives arrived at the soccer park that morning in June, they brought with them an electric current of fear and apprehension. They were scheduled to meet with chief executive August IV to put the finishing touches on a plan to slash and burn as many costs as possible. Their goal just a few months earlier had been $500 million, but with InBev now breathing down their necks, it might have to be double that. The whole world was watching to see whether InBev would make a move, and this was the best option Anheuser had for keeping its investors happy.

They had never been known for cost-consciousness. For decades, the aviation-loving Busch men and other staffers had hopscotched around the country on the company's own fleet of sleek, leather-outfitted Dassault Falcon corporate jets. It got to the point for a while where even the wives of strategy committee members hadn't flown commercial in years. To keep “Air Bud” running smoothly, the company had its own flight operations department with a staff of 20 pilots, plus mechanics and other workers, all operating out of a spotless private hangar at the Spirit of St. Louis Airport.

When they weren't flying private, Anheuser staffers flew first-class. “I want my employees at the front of the bus everywhere they go,” August III used to say when he was CEO. “They should feel very important.” First-class flights were essentially company policy, and the perk stretched far down the pecking order. During The Third's tenure, the company even bought first-class tickets for young staffers who traveled back and forth between St. Louis and top business schools in Philadelphia and other cities.

Trips to New York meant stays at the glitzy Pierre hotel and $1,000 dinners. Visitors to St. Louis were treated to suites at the Ritz-Carlton. Still, the money Anheuser-Busch spent wasn't all for the home team's personal enjoyment—it also spent copious amounts of cash on its breweries, its theme parks, and even its Clydesdale horse operations to ensure that it had the best beer-making technology, the cleanest bathrooms, and the freshest paint jobs and flower arrangements available. For the 27 years he served as CEO, all of these costly efforts were undertaken to meet The Third's exacting standards, and many Anheuser executives were proud to work for a company that cared so much about quality.

The soccer park itself was a money pit. Anheuser-Busch helped build it in the early 1980s to house local youth players, and later bought it outright, spending two and a half years upgrading the facility to open it up to collegiate and professional teams. Because it was constructed on low ground, it was prone to flooding—and preventing and draining those floods was expensive. The irony was just too much. The Busches, who were avid duck hunters, would at points deliberately flood property on their massive farms to create the right environment for fowl during hunting season. However, the Anheuser—Busch—owned soccer park, which flooded on its own naturally, had to be pumped dry at significant cost.

August IV, who was known in aptly royal terms as “The Fourth,” had been trying to right Anheuser's listing ship since becoming CEO a year and a half earlier in December of 2006. These weren't easy changes to make after decades of excess, especially with his father still on the company's board of directors. It was going to require real effort from his entire team.

Each executive showed up that day with a mental list of things he or she could offer up. Some were responsible for large segments of the company, like its brewing operations, its entertainment unit, or its giant marketing division. They weren't accustomed to being asked to take a hacksaw to their budgets. Still, this was not the time for idle contributions. They weren't panicked. They hadn't actually seen a bid from InBev. Even if one never materialized, however, it seemed likely that they would now spend the next several years fighting back one assault or another, whether from other rivals or from shareholders. The company needed to get leaner and meaner, and the group had two days to figure out how.

They filtered into a large conference room at the soccer complex and grabbed eggs and pastries from the breakfast buffet, milling about and chatting until August IV strode in and set his materials down at the head of the table.

The Fourth was a loyal Bud dresser, often sporting Anheuser-Busch—themed cufflinks or shirts with the company's logo embroidered on the front. He donned cowboy boots nearly every day, frequently in a preferred shade of green reptile skin, and on dressier business occasions he tended to pair them with an oddly tinged green suit. The boots afforded his five-foot-ten-inch frame an extra inch and a half or so, and he had Tony Lama, founder of his favorite boot maker, to thank for that—along, again, with Warren Buffett, who had owned Tony Lama's namesake company for the past eight years. The boost in height tended to help his cause with women but failed to prompt similarly adoring gazes from his strategy committee. They knew The Fourth had picked up the boot trick from his height-challenged father, and they weren't falling for it.

August IV had never liked coming in to his office at Anheuser headquarters downtown, but he had been skipping out even more frequently in recent months. He had set up an office and even a health room at the soccer park and preferred to work from there, citing construction on one of St. Louis's major highways as an excuse. He, after all, didn't pilot a helicopter to work every morning the way his father did. All the same, his decision to isolate himself from the rest of his troops illustrated how disjointed things had become for The Fourth at his own company, which, except for a brief stint, had boasted a Busch family member as CEO since its formation. The Fourth was feeling frustratingly ineffective and hamstrung by his father, and his increasingly distant attitude had rubbed off on the rest of the strategy committee. “The cat's away, the mice will play,” one of them said.

“He increasingly was getting lazy about coming to the office,” this person added. “He said, ‘My war room is the soccer park.' But not really. We'd do meetings at his house, we'd do meetings at the soccer park, and because he flew a lot, we'd meet at Spirit, at the hangar. We'd have a lot of meetings there.” It was reminiscent of times in the past when The Fourth, as the company's marketing head, would disappear from the office for days and force his deputies to track him down if work needed to be done. “He just never went to the office,” the strategy committee member said. “He never did. And that was a shame, because I think that was one of his big mistakes.”

With The Fourth now situated at the head of the table, the group got down to work. The day was scheduled to start with a presentation from two bankers at Goldman Sachs who had been counseling Anheuser-Busch for a while: Tim Ingrassia, who had just been appointed Goldman's head of Americas Mergers and Acquisitions at age 43, and Peter Gross, a top “relationship banker” who called upon Goldman's highest-profile clients. The two had known each other for nearly two decades, from back when they were both M&A bankers at the firm, and had stayed good friends even after their career paths diverged. Gross had been asked at the mid-point of his career to assume responsibility for Goldman's relationships with some of the world's biggest companies, and had since become a top banker for lucrative clients such as tobacco giant Altria. While Goldman had once been on Anheuser-Busch's black-list, Gross had gotten his firm back in the company's good graces by doggedly making phone calls and knocking on doors in St. Louis. He and Ingrassia complemented each other well. Gross had the trust of August IV, whom he considered a friend. Ingrassia, the youngest of 10 children and a father of 4, didn't know Anheuser-Busch as intimately but was considered one of the best merger bankers in the business and had the deal-making savvy and stature Anheuser-Busch would need if it came under attack.

After rumors of InBev's interest had first hit in late May, Anheuser's board of directors held a meeting at which they lobbed a bunch of questions at the two bankers. Their main concern was whether InBev could actually finance a deal in the current environment, given that the credit markets were starting to disintegrate and Anheuser-Busch could cost $40 billion or $50 billion. Just two months earlier, investment bank Bear Stearns had collapsed and been sold to rival J.P. Morgan at a fire-sale price. Could any company—even one as big as InBev—find enough banks to loan them that kind of money?

The bankers laid out half a dozen bullet points, all of which pointed to a clear answer: Yes, InBev probably had the capacity to make a bid. With that established, the board's focus had immediately turned toward what it should do to prepare for that worst-case scenario. With any luck, they hoped, the situation wouldn't devolve that far. InBev would get cold feet, and Anheuser-Busch would be left alone to fix itself.

Ingrassia and Gross were prepared to address that very issue—fixing the company—that morning at the soccer park. They stood up in front of the executive committee, their visual slides projected on screens behind them, and launched into a presentation on what Anheuser needed to do to thrive again and to protect its longstanding independence. The goal of the session was to work through the company from top to bottom, discipline by discipline, to see how many dollars they could come up with and how fast. Investors and analysts on Wall Street were waiting for Anheuser's plan.

“If we don't do it ourselves, somebody else is going to do it to us, and it's likely going to be them,” Ingrassia told the group, referring to the InBev takeover rumors. “What can we do, and how quickly?”

“The topic of the day was ‘This is an emergency,' ” one strategy committee member said. “ ‘We've got a problem here. We're about to be taken over.' ”

Still, it was going to be a challenge to get some Anheuser executives to change their entrenched views. The company had always made certain arguably frivolous expenditures without a second thought.

The night before, after Ingrassia had returned late to his room at the Ritz-Carlton, he flicked on the television and started aimlessly surfing through the channels. One of the ESPN sports networks caught his eye, and he paused on the station, blinking in disbelief. It was covering a tournament in some incredibly arcane sport—it could have been tiddlywinks for all he knew—and the competition was sponsored by Budweiser. He sat on the edge of the bed and stared at the screen for a few moments, shaking his head, before flipping to the next channel. Thanks to that incident, he had arrived that morning with an idea for at least one expenditure the group could cut.

The executives started to go around the table, one by one, detailing where they could eliminate costs. Marketing. Theme parks. Brewing. Packaging. Nothing was immune. The entire exercise felt surreal. They had been working to reduce spending for several years, but never on this level. This time, they were actually considering firing employees and cutting into retirement perks. It was going to hit St. Louis hard.

At mid-morning, with the Goldman team still plodding through its presentation, someone stepped in from outside the room and handed a note to August IV. He spent a brief moment reading it, his eyes darting across the paper, before rising from his chair and leaving abruptly. It wasn't unusual for The Fourth to duck out of a meeting to take a quick phone call, but this seemed different—it looked urgent, and he was not a man who was particularly prone to urgency.

Anheuser's other executives shot looks at each other from across the table, confirming that they weren't alone in their uneasiness. Not long afterward, a security guard who had been milling around outside in the hallway validated their fears. August had, in fact, been summoned for an urgent phone call, and the man on the other end of the line was Carlos Brito, chief executive of InBev. Anheuser-Busch and InBev had a partnership agreement, the executives knew, and The Fourth and Brito occasionally spoke for that reason. Still, there was no need for them to be discussing it now. As the minutes ticked away, it seemed clearer and clearer that this could mean only one thing. The cohesion in the room started to dissolve, and the executives began making private phone calls and gathering in small groups for hushed pow-wows.