Dethroning the King (52 page)

Brito and Ingrassia came to loggerheads at one point as well. It was hard to hold it against Brito, but his extremely confident nature irked some members of the Anheuser team. “You recognize when you do these deals that there's a tendency for everybody to kind of see the worst in the other guy,” one advisor said. “What you realized with Brito is that this is a very entrepreneurial, very hardworking guy who had attained an unbelievable dream. And the thing you felt a little bit when you were looking at him, and people on their side, is that whatever self-satisfaction they had, they had no idea what was in the pot on the other side that made the thing possible and really had nothing to do with them.”

“If anything, InBev got unbelievably lucky that they went after something that was vulnerable for reasons that were totally outside of what they truly understood.”

In the end, InBev didn't get the protection it wanted from a Modelo lawsuit, nor did it win much flexibility in case its banks attempted to cancel the deal. The banks protected themselves by making it clear they would only finance the deal if InBev's debt maintained an “investment grade” rating, which signaled it wasn't overly risky. Whereas they could push the “eject” button if InBev's ratings dropped, InBev itself couldn't.

“If the ratings disappeared by closing, the banks didn't have to fund,” said one Anheuser advisor. “But the amount of risk InBev took was mind-boggling. InBev was still obligated to close. Which meant they would have had to go find money that couldn't have been found.” InBev's legal liability to Anheuser-Busch could be so significant that it would have to essentially hand the company over to Anheuser to pay damages.

“This was the strongest contract you can possibly imagine, but with this one real risk for InBev,” the advisor said. “The net result is if they had lost their ratings, Bud and InBev would still be one company, but Bud would have gotten InBev in damages for violation of the contract.”

It was clear how badly InBev wanted to own America's brewing crown jewel. It represented the fulfillment of a career-long dream for many of its executives and board members—not just the felling and seizure of an American icon but the conquering of the global beer market—and they were willing to put nearly everything on the line for it. They were way past the point of looking back now. By making their bid public, they had essentially told investors they needed Anheuser-Busch. And it was true. InBev's growth was slowing, and Anheuser-Busch was the only business in the world that completed the picture. If the company ran out of assets to buy and improve, it was going to have to face into the wind and deal with the same stagnant beer market that had been plaguing everyone else.

“This was InBev's lifelong dream, to do this,” said one Anheuser-Busch advisor. “InBev never wavered for a moment in their interest in doing the deal. If you had had a buyer who wavered, it would have fallen apart. But they never wavered. This was their dream deal, and they knew they were going to make money on it. That made all the difference in the world.”

Anheuser knew it was in a position to turn the screws on InBev because it had opted not to publicly malign its rival during the takeover fight. If Anheuser's team was going to sell such an iconic American institution to a foreign competitor, the least they could do was make one last stand and demand the very best terms possible.

“I credit Anheuser for being thoughtful enough not to preclude an agreed deal by doing something drastic,” said one InBev advisor. “They didn't do anything rash, and they left open the possibility that they would have their moment too, at the end, where they could push for what they wanted.”

With the deal's price already locked in place, Anheuser turned its focus toward smaller points of contention—some of the same issues InBev's board had originally weighed as being of likely importance from a psychological standpoint. A few seemed trivial, and were, from a financial perspective. But they gave Anheuser's employees a boost and secured the company a few desperately needed patriotic and public relations victories.

InBev had already said when it made its offer that it would keep St. Louis as its North American headquarters and integrate Anheuser-Busch's heritage into a new name for the company. After some back and forth, both sides agreed to subordinate the “InBev” moniker and name the merged entity “Anheuser-Busch InBev.” InBev also agreed, as it had pledged, to keep all of Anheuser's U.S. breweries open and to stay committed to Anheuser's sales and distribution system. To do otherwise, at least up front, would have been foolish—InBev needed the support of Anheuser's powerful wholesalers if it wanted to make the deal work.

Anheuser won concessions in two areas that dragged InBev into uncharted territory. InBev's record of corporate philanthropy was paltry in comparison to that of Anheuser-Busch, which gave $13 million to St. Louis area organizations in 2008 and underwrote everything from local Christmas carol festivals to St. Patrick's Day Parades. So InBev agreed to support Anheuser's charitable causes in the area and to pay millions of dollars each year to maintain the costly Clydesdale operations and Grant's Farm, where admission was still free despite the hundreds of people it employed and roughly 1,000 animals it housed. InBev, whose name meant next to nothing to sports fans, also agreed to honor the all-important naming rights for Busch Stadium.

“We knew from the outset we were going to have to agree to all of this stuff,” said one person close to InBev. “At that point, people were relieved we were getting the deal done. Everybody was willing to accommodate.”

Anheuser's wholesalers were concerned about how much support they'd get from the new company, and Anheuser tried to get InBev to spell out its commitments to marketing. The frugal Brazilians, however, shied away from making any promises over that aspect of their budget.

“They recognized that Anheuser-Busch was a superior marketer—it's just that they felt some of the stuff they did was a waste of money. All those sponsorships were a huge cost,” said one person close to InBev. “They had a hard time with the things that were actually beneficial versus those that were just huge ad spends that didn't actually support the brands. I think they felt that they'd use a much better, more targeted approach to marketing.”

InBev's takeover of Anheuser-Busch was worth tens of millions of dollars apiece to some of the banks and law firms working on the deal, and as talks progressed that weekend, their efforts to win as much public credit as possible ramped up in stride. With the financial markets as treacherous as they were and merger activity falling through the floor, even bankers who played no measurable role in the deal were pushing for their firms to be listed as prominently as possible on the press release that would announce the transaction. It seemed as though Brunswick's public relations team spent more time drafting the list of banks involved in the transaction than they did on any other section of the six-page press release, as mid-level staffers stood watching over their shoulders, constantly questioning the order in which their firms appeared.

Several banks that were listed on the document did little to nothing and got paid accordingly. Merrill Lynch, for example, was named as an advisor to Anheuser-Busch, and Deutsche Bank as an advisor to InBev. Their inclusion, however, mattered for the industry's all-important “league tables,” which measure which banks advise on the most deals each quarter. Wall Street firms' reputations hinge on the perception that they provide sought-after merger advice, and league tables, as flawed as they are, serve as the most useful measure bankers can point to. The bankers who milled about at Sullivan & Cromwell's offices that weekend knew that it could be months before they saw another deal this big, so they had to make sure they were associated with it.

Despite the size and significance of InBev's purchase of Anheuser-Busch, the vast majority of the two companies' merger agreement was negotiated between noon on Saturday, July 12, and the wee hours of Sunday morning—an infinitesimal period of time relative to most merger deals. It took just 16 hours to cobble together the basic legal document underlying the entire massive merger.

“From the date of InBev's public offer to the weekend after July 4, we had a fully executed, complex as hell merger agreement to buy Modelo, and a week after that we had it with InBev,” said one Anheuser insider. “It was just 24/7. The speed at which this thing happened is mind-boggling.”

Most of Anheuser's team left the Sullivan & Cromwell offices at around 4 or 5 A.M. on Sunday. They didn't fill InBev in on the specifics of what was happening next, but the Brazilians knew that Anheuser's board had a meeting scheduled for later that day in St. Louis. Unless something went disastrously awry before then, they would hold a vote that night on whether to grant final approval to the deal that had just been negotiated.

After taking a much-needed break for a couple of hours, InBev's team reconvened for a critical but, they hoped, largely ceremonial board meeting of their own. Brito and a few other key executives, who had finally had time that morning to grab showers back at their hotel, filed into a conference room at 375 Park Avenue alongside their closest advisors and shut the door.

The conference rooms were jammed with dozens of lawyers who were still cranking away on the Anheuser-Busch deal, but one room had been vacated and cleaned for another highly confidential meeting between two titans in another industry. H. Rodgin Cohen, Sullivan & Cromwell's influential chairman, was advising Lehman Brothers' chief executive Richard Fuld at the time on how to right Lehman's ship, which had started listing dangerously over the summer. He had arranged for a meeting that afternoon between Fuld and Bank of America over a potential deal between the two companies. Lehman's proposal fell on deaf ears that day at Bank of America, which ultimately bought Merrill Lynch instead, over a particularly disastrous weekend in September. On that Sunday in July, in two adjoining conference rooms, the fates of two of America's best-known companies were on the line.

As InBev's team in New York took their seats around the conference room table, board members started dialing in from all around the world and engaged in a bit of small talk before the call began. It wasn't a celebratory moment yet—InBev's band of Brazilian and European directors had questions about the merger agreement, the dynamics between the two companies, and what would happen next in the takeover process. Most importantly, they wanted to know whether it was clear that Anheuser-Busch's board would actually approve the deal. Several people took turns speaking—Brito helped answer the board's questions, as did the teams from Lazard and Sullivan & Cromwell.

Roughly two hours later, InBev's satisfied board agreed that signing a deal to buy Anheuser-Busch for $52 billion was worth the financial risk. They were upbeat but anxious.

“Everybody was like, okay, we're going to keep our fingers crossed,” said one InBev insider. “We just didn't know what was going to happen on the other side.”

—Anheuser-Busch board member Henry Hugh Shelton

 

 

 

B
y the time Anheuser-Busch's team assembled at Teterboro on Sunday for their 12:15 P.M. departure to St. Louis, they looked like a ragtag bunch—for a bunch of millionaires, at least. Anheuser's board needed to approve the deal that day if it was going to be announced by the next morning, so just a few hours after many of them staggered out of 375 Park Avenue at the crack of dawn, representatives from Goldman, Citigroup, Skadden, and Kekst climbed wearily back onto an Anheuser-Busch jet, bound yet again for the airplane hangar's upstairs conference room.