Dethroning the King (53 page)

After the longest night of his life, Tom Santel had stumbled out of Sullivan & Cromwell's offices and over to the New York Palace hotel at around 6 A.M. He caught a half-hour nap and then, numb to his busy midtown Manhattan surroundings, crossed Madison Avenue to attend mass at the landmark St. Patrick's Cathedral before heading to the airport.

Dave Peacock, who wanted to make it back to headquarters before the deal was announced, had also headed for the airport, leaving the lawyers to hammer out the merger's final terms. He felt it was more important to be on the ground in St. Louis when employees got word that their proud company had been sold out from beneath them. The media were already all over the situation, and the whole world was expecting a deal to be announced within hours. Anheuser's operations could quickly become paralyzed by dread and uncertainty if key leaders weren't there to quell the fear.

Peacock ran into a few members of the New York contingent in the waiting room at the airport as they prepared to board their plane.

“I guess I'm supposed to say congratulations,” Kekst's Larry Rand said to him in greeting.

“I guess you're supposed to, but please don't,” Peacock replied, looking utterly spent from the all-nighter he had just pulled. He had been given a chance that weekend to prove his mettle to InBev, which could bode well for him professionally. It was clear by that point that August IV wouldn't continue on as an executive at the new company, but Peacock, with his deep family ties to the company and blood that “bled Budweiser,” according to a colleague, might get that chance.

That afternoon, though, Peacock looked too broken up to care. He hadn't showered or changed his clothes following Saturday's all-night negotiating session. Most of Anheuser's executives drove home once they touched down in St. Louis—or had their wives pick them up—so they could grab a few hours of sleep, scrub down, and grab something to eat before the board meeting began. “Quite frankly, we all looked like hell,” said an Anheuser-Busch advisor.

Vanities aside, the group set off for St. Louis on a jet that, as always, carried plenty of Budweiser but almost nothing to eat. They had been plied with free beer now for weeks. It was the kind of professional assignment aspirational college fraternity boys dreamed of—getting paid huge amounts of money to shuttle back and forth across the country on a beer-filled private jet. No one felt like drinking, though. That had been the case ever since Anheuser's board threw in the towel.

As the directors arrived from various corners of the country for their scheduled 3 P.M. meeting, conquering the logistical challenge that had become ritual in recent weeks, some were surprised to see that Ed Whitacre wasn't flying in to attend the meeting in person. He planned to dial in by phone instead to register his comments and make his vote. Whitacre was a busy man by all accounts, but it seemed strange to have him absent from the final independent board meeting of a legendary American company he had helped direct for decades—a company he had also helped hand over to a rival.

“I do remember, because he played such a prominent role in everything, that it raised an eyebrow when at this storied company, with this the last board meeting to approve it being sold, he wasn't there,” said one Anheuser-Busch advisor. “I remember thinking, ‘This is the biggest moment in the company's history.'

“But God knows, he could have had an extraordinary event he had to deal with.”

The board's final crisis meeting was steeped in regret and sentimentality, but it was fairly perfunctory. Anheuser-Busch's fate had already been sealed, and the pivotal point had come six days earlier, when the board turned its back on Modelo and decided to approach InBev. The realization that it was all over was devastating to some in the room, but none seemed to be taking it harder than Pat Stokes. “I can't believe I dedicated 40 years of my life and it came to this,” he said several times to no one in particular. “He's a really honorable guy,” one Anheuser advisor said. “I think he was really disappointed. I felt really bad for him, [and] I felt bad for Randy. I felt bad for these guys who had busted their asses the whole life of the company and saw this happen, and felt, I think, somewhat powerless to prevent it.”

After days' worth of negotiations that had pushed the deal to within a millimeter of success, all the board needed to do now was formally acquiesce. Companies tend not to enter into in-depth talks with their bitter rivals only to jettison a tie-up at the last moment.

So the teams from Goldman and Citigroup were justifiably surprised when, not long into the board's discussion, a murmur arose that perhaps Anheuser's board should spin around and ask InBev for more cash. Gross and Ingrassia, in particular, were incredulous. When Ingrassia had suggested asking for a few extra dollars on Wednesday, before Anheuser and InBev had started negotiating, the directors had let him be chastised as if the concept was utterly ludicrous. Now, with the companies' merger fully baked, the board wanted to flirt with the idea of demanding more money? They had to be kidding.

“Guys, we had an opportunity and you chose not to take it. Why are we discussing it now?” Gross questioned tersely, briefly losing his cool out of sheer annoyance more than he would have allowed himself to a week or two earlier. “You talked about not wanting to worry about risk before, and now you'd have much more risk, completely backtracking on a deal that we've now negotiated!”

It seemed to be suddenly hitting some of the company's directors that Anheuser-Busch was going to lose its longstanding independence while they were in charge. “We had this flirtation with going back and negotiating, and there was just some strange, last-minute punting that was going on,” one advisor said. “I think at that point, people realized what they had set in motion and it felt a little too real to everybody.” The board quickly dropped the idea and rededicated itself to the matter at hand.

Skadden's team walked the directors through the merger document line by line to ensure they knew what they were approving, and the bankers gave a brief rundown that explained why they thought the transaction's price and terms were fair. The Third and The Fourth were businesslike and professional and showed no hint of emotion, but the rest of the board knew it had to be heart-wrenching for both men—for different sets of reasons.

“I could only imagine what August III probably felt like, because he had built the company,” said General Shelton. “Having taken over from his dad in a coup, to continue leadership and then build that company into the great conglomerate it was, to him that had to be awfully tough. I just can't imagine. And of course living right there in St. Louis ...” The Fourth, as far as anyone can remember, didn't speak a word.

After roughly two hours of procedural box-checking that seemed like an eternity, the board finally signed off on the merger. It was time to head home.

Their professional dalliance with St. Louis now over, Anheuser's advisors gathered up their things and headed out of the hangar toward a large jet that was bound for New York. It wasn't the last time some of them would set foot in the hangar. While that Sunday marked the announcement of the transaction, there was plenty of work to do in the coming months before the deal could become official.

The group didn't make it back to New York as smoothly as usual. Some members of the local St. Louis media had finally uncovered the board's hiding spot and had come armed with television cameras. Tom Santel had received a message on his BlackBerry during the board meeting that said there was footage on television of him getting out of his car, so he left through a back exit when the session wrapped up. Citigroup's Jeffrey Schackner wasn't so lucky—a cameraman shoved a lens in his face as he walked out the door and toward the jet bound for New York. He put his head down and vaulted up the steps into the safety and obscurity of the airplane, but the image ran repeatedly on local television, prompting some of Schackner's other St. Louis clients to joke that he'd be persona non grata in town for a while.

“I won't say that everybody was disappointed,” said one person who attended the board session. “Yeah, there was disappointment that this iconic American company that had been independent for all of these years would no longer be independent. But they all said, ‘We have a fiduciary obligation, the price was fair, and the execution risk was no longer with us but with somebody else.' ”

“I just remember getting on that plane and being in this unbelievably pristine hangar, just shaking my head that the thing never needed to have happened,” said another. But “at the end of the day, we're all businesspeople, and they received a good premium.”

That premium was enough to significantly enrich members of the board who held a bunch of Anheuser-Busch stock—and August III and Pat Stokes in particular. A good handful of the board—Taylor, Warner, Jones, Loucks, Martinez, Payne, and Roché—held stock that was worth $1.25 million upon completion of the merger. That paled in comparison to the $427.3 million haul August III pulled in, a combination of stock he controlled directly and stock that indirectly benefited him through various trusts and through his wife. Stokes walked away with $160.9 million.

“It came to a point toward the end where I believe August III and Pat Stokes finally looked at how much money they were personally going to make and said, ‘Let's do it. It's over, let's do it,' ” said Harry Schuhmacher. “I think August IV still had an emotional tie to the company that he had not overcome yet, and it wasn't about the money. So he was trying to prevent the deal at any cost. I think I remember August even telling me that ‘Pat and Dad have sold out.' It became hard for him to really do anything at that point.”

Anheuser-Busch's capitulation was particularly frustrating to some of the Wall Street advisors who wanted to win for competitive reasons. They felt the board had pulled the rug out far too soon, leaving InBev's team able to claim credit for a masterful takeover campaign.

“The InBev side all throughout this thing had a perspective on what they thought we were doing—what they thought the story was—that couldn't have been more off,” said one Anheuser advisor. “One of the greatest parts of this story was the disparity between what they assumed was going on and what was really going on. There was this view on the InBev side that somehow they and their bankers had orchestrated this inevitable push towards a deal, and that the sheer weight of the thoughtfulness of their tactics lead to a deal happening. I'll just tell you, that could not have been further from the truth.”

InBev's ability to pull together a slate of alternate board members had “literally nothing to do with it,” the advisor said. The board's decision came down to its view of the company's alternatives. Instead of taking more risk than necessary, whether by throwing their weight behind The Fourth or by trying to execute a deal with the Mexicans, they opted for the lowest-risk option.

“They were just incredibly, incredibly conservative in doing that,” the advisor said. “It was nothing so much about any great tactics of InBev. There was nothing about their alternative board that did anything. No one was so intimidated by that at all. There was nothing about what Adolphus Busch did that mattered. This was very much just, ‘What's the number they're putting up, what's the value we can do on our own, and do we feel like taking any risk at all to get there?' And the board saying ‘No, we don't want to.' ”

Once they had all piled on the plane, the group of New York- bound advisors settled into their seats for the flight back, deflated, hungry, and—with the company's fate sealed—eager to get home to bed. Some toasted the bitter occasion by finally cracking open a few free beers. They had no clue that Brito and the rest of InBev's team were doing the very same thing in a document-strewn conference room in New York, though in far more celebratory style.

Joe Flom, who seemed to have been itching for battle from the start, hadn't cooled off and began pacing like a caged tiger. “He was just running up and down the aisle of the plane,” said one person who was on the flight. Out of Anheuser's entire pool of advisers, Flom was “probably the most disappointed that they didn't want to go to war,” said another member of the group. It was Flom who had argued earlier that week that they should call attention to InBev's relationships in Cuba, where U.S. companies were mostly barred from doing business, in an effort to cast a pro-American shadow on InBev's operations. Anheuser had taken his advice and issued a statement that chided InBev for not explaining how its distribution partnership with Cuba's government would impact Anheuser's customers. The effort went over like a lead balloon. It was too little, too late, and too desperate. Many media outlets neglected to even note the Cuba angle in that day's news coverage. For a hostile takeover with such significant implications, that small shot across InBev's bow was as messy as the PR battle between Anheuser-Busch and InBev ever got. And to Flom, it seemed to be a disappointment.