Dethroning the King

The Hostile Takeover of Anheuser-Busch, an American Icon

Julie MacIntosh

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781118202821
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Historia empresarial

How the King of Beers collapsed without a fight and what it means for America's place in the post-Recession world

How did InBev, a Belgian company controlled by Brazilians, take over one of America's most beloved brands with scarcely a whimper of opposition? Chalk it up to perfect timing—and some unexpected help from powerful members of the Busch dynasty, the very family that had run the company for more than a century. In Dethroning the King, Julie MacIntosh, the award-winning financial journalist who led coverage of the takeover for the Financial Times, details how the drama that unfolded at Anheuser-Busch in 2008 went largely unreported as the world tumbled into a global economic crisis second only to the Great Depression. Today, as the dust settles, questions are being asked about how the "King of Beers" was so easily captured by a foreign corporation, and whether the company's fall mirrors America's dwindling financial and political dominance as a nation.

• Discusses how the takeover of Anheuser-Busch will be seen as a defining moment in U.S. business history
• Reveals the critical missteps taken by the Busch family and the Anheuser-Busch board
• Argues that Anheuser-Busch had a chance to save itself from InBev's clutches, but infighting and dysfunctionality behind the scenes forced it to capitulate

From America's heartland to the European continent to Brazil, Dethroning the King is the ultimate corporate caper and a fascinating case study that's both wide reaching and profound.

Chapter 1

The Game Is Afoot

There’s a shark in the water, and the shark is InBev.

—Anheuser-Busch executive

Wednesday, 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.”

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 t...