Dethroning the King (21 page)

Anheuser-Busch expressed interest in a deal, so The Third and Mackay both flew their teams all the way to London for a meeting. Before Mackay and his deputies had even settled into their chairs, The Third, who was never one for customary pleasantries, launched abruptly into his proposal. He wanted control of the whole company if he did the deal, The Third said, snapping his fingers at one point to summon Purnell, who was standing behind him, in search of a missing piece of information. Control of SAB was more than Mackay was willing to grant, especially straight out of the gate, and he sat back in his chair, balking at The Third's audaciousness and reasoning to himself that there was probably room for negotiation. The Third wasn't interested in compromise. He assessed Mackay's response, thanked the SAB team for their time, and then left them sitting at the table, stunned, just minutes after the meeting had begun.

At the Munich brewers' conclave in 1997, The Third, as head of the world's largest beer company, admitted he had been late to the game on international expansion. “Due to the profit potential of the U.S. market,” he said in his keynote speech, “we did not start exploration of the international market until 1980.” He then pledged to focus on building international partnerships. “Our goal is to build Budweiser into a global brand,” he said. “The globalization of American culture is also good for Bud.”

He continued to drag his feet after acknowledging those missteps. SAB, on the other hand, didn't sit around waiting for the Americans to change their minds—it morphed from a backwater brewer in the developing world into a top global player within just a decade. After SAB won more freedom to expand when South Africa held its first democratic elections in 1994, it hit newly developing markets in Eastern Europe hard—heavy-drinking territories like Hungary, Poland, and the Czech Republic—and moved its headquarters to London in 1999. In 2002, the brewer Anheuser-Busch had dismissed years earlier for being too South Africa-centric inked the audacious deal that hit Anheuser right in the gut—its $5.6 billion purchase of Miller. The move gave SAB immediate and sweeping access to the United States, the world's most profitable beer market, and rooted it deep into Anheuser's backyard. With that deal, SABMiller became the world's second-largest beer company behind Anheuser-Busch.

The Third continued to take tiny, defensive bites at the apple throughout the 1980s and 1990s. He weighed the possibility of a leveraged buyout in the early 1980s when buyouts were all the rage, but nothing happened. He cut a licensing deal in 1980 to have Labatt brew Budweiser in Canada rather than buying Labatt outright, leaving the Canadian brewer ripe for a takeover by Interbrew 15 years later. In 1986, he cut a similar deal with Guinness to brew and sell Budweiser in Ireland, allowing Guinness to later merge into beverage giant Diageo. Anheuser-Busch partnered up with Birra Peroni in 1993 to distribute Budweiser in Italy, with Kirin that same year to brew it in Japan, with Grupo Damm in 1995 to brew it in Spain, and with Kronenbourg in 1996 to brew it in France. By the late 1990s, it was obvious that the beer industry's growth was going to come outside the United States. The Third's rivals were snapping up assets left and right by then, and prices had skyrocketed.

“The company became sort of isolated, with some partial ownerships,” said one former executive. “Some of these decisions should have been made in the 1980s and early '90s. The company had plenty of opportunities back then to reach out.”

“We could claim globalization, but he did it on the cheap,” said a person close to the company. “I think it may have been the case where having his name on the door made him less open to taking the kind of risks it would have taken to have gone global. A bigger thinker would have seen that coming.”

“Part of it was that we were already the world's biggest brewer,” this person said. “I don't think he ever saw the threat coming from the outside. I think he was always looking more toward the inside. For whatever reason, The Third didn't want to take that level of risk. It'll be one of those things he'll take to his grave.”

Of all of Anheuser-Busch's missed opportunities, the most fateful was a chance The Third had to snuff out InBev before it was ever created. In the early 1990s, Anheuser decided it wanted to partner up with one of the two top brewers in Brazil in order to launch Budweiser in the fast-growing country. It interviewed top Brazilian brewer Brahma and its second-largest competitor, Antarctica, and eventually entered into negotiations with both to see which would offer the better deal.

Brahma was headed by a powerful trio of investment bankers—Marcel Telles, Carlos Alberto da Veiga Sicupira, and Jorge Paulo Lemann, the most famous banker in Brazil, who was as well known for the foiled 1999 attempted kidnapping of three of his children as he was for his professional successes. Two gunmen had unleashed a torrent of point-blank bullets at the driver of his children's sedan, but the heavily armored car saved their lives. Lemann moved his family shortly thereafter to Switzerland, his father's country of origin.

The reclusive Lemann and his two partners had taken control of Brahma in 1989 after selling Garantia, an investment bank that was known as “Brazil's Goldman Sachs,” to Credit Suisse First Boston for $675 million. They funneled a fraction of that cash into their new beer endeavor. Telles became Brahma's chairman and chief executive officer, and the three men infused sleepy Brahma with their own competitive brand of banking culture.

Brahma's trio of bankers proved to be tough negotiators, so Anheuser-Busch went with the easier route in 1994 and bought a minority interest in second-ranked Antarctica instead. The partnership progressed along smoothly for several years until Brahma reappeared and stunned The Third and the rest of his team by making a bid to buy Antarctica outright. Anheuser-Busch analyzed the situation and concluded that the Brazilian authorities would never let the deal close for antitrust reasons—it would merge the country's top two brewers into one that held huge regional power and influence.

They were wrong.

Brahma won clearance for the deal and merged with Antarctica in 1999 to create AmBev. Under the trio of bankers' leadership, AmBev took off like a rocket.

The Third woefully misjudged what he was up against in Brazil, though he was given several chances to help steer AmBev's course. By the mid-1990s, growth-hungry Telles and Lemann had developed a sweeping vision for the future of the global beer industry, and they invited The Third to be part of the plan. Telles, who had spent some time with Lemann, The Third, and Purnell during a 1991 meet-and-greet trip to Busch Gardens in Williamsburg, Virginia, called to request another meeting, this time in St. Louis. He showed up at Anheuser's headquarters alone, clutching a bold proposition.

“Let's form the Coca-Cola of beer,” he said to The Third and Purnell, explaining that if Brahma, Antarctica, and Anheuser-Busch merged, the combined company would have a lock on the North and South American beer markets.

“It was about a vision of the future in the Americas, where they would make a lot of the calls in other countries and we would make the calls in the U.S.,” said Purnell. “It was a merger proposal; it was a “Let's get married, we can do better together than we can alone.' ”

The Third and Purnell had never encountered anyone with such grand ambitions. Telles's supreme self-confidence—the sense of manifest destiny he radiated—was off-putting to the two St. Louisans, who still felt they were learning the ropes on the international front. Telles's pitch made it clear that he was way out in front of them.

“This proposal did not appeal to August,” Purnell said. The Third couldn't stomach the concept of a tie-up that would put the Brazilians in charge outside the United States. So when Brahma and Antarctica decided to join forces, Anheuser-Busch backed itself out of the situation.

“That turned out to have been a fateful—I won't say ‘fatal,' but rather a ‘fateful'—decision,” Purnell said. “We ended up exercising our “put” in Antarctica rather than joining their consolidated board. They then acquired Labatt in Canada, then went over to Europe, and then finally came back to make their offer for A-B.”

The Third seemed to exert almost as much effort finding ways to avoid doing deals as he would have if they had actually happened. On the few occasions when transactions got close to the finish line, Anheuser's team would come back at the 11th hour and ask for a lower price or better terms. If they got what they asked for, they would turn around and ask for a little more—and then a little more, until the other party finally refused to budge and the whole thing fell apart.

“He was always trying to strike a deal that completely benefited A-B,” said a former strategy committee member. “That killed more deals. There was always that little provision that tilted our way that absolutely prevented it from ever going outside the boardroom. That was a classic way of stopping everything.”

“We couldn't roll the dice unless someone was willing to sell us a crown jewel at a low price, risk-free, which for some reason no one was willing to do,” said former executive Bill Finnie, with an ample dose of sarcasm.

Rather than buying important assets, The Third and the rest of Anheuser's old guard fell into the habit of finding ways to justify standing still. There always seemed to be a reason why each of the assets simply wasn't good enough for Anheuser-Busch. It was “a cult of admiration,” one company advisor said. “It was like a mutual admiration society.” They'd criticize rivals for doing deals that belied their global ambitions, only to realize down the line that the deals had proven successful. “We didn't have long range corporate planning at all,” said one former executive, who criticized Anheuser's corporate planning staff for being in The Third's back pocket. “We just didn't have it.”

“We'd sit there and ridicule Coors for going into the UK, ridicule SAB for buying a stake in Miller,” the executive said. “How do you keep criticizing people like this? How do you look at every deal like it can't work, it can't work, it can't work? It's working!”

Former director John Jacob stepped forward out of frustration during one meeting and asked, “How is it that we can never justify buying anybody, yet we belittle anybody else who has bought somebody? And then a year later, we sit here and realize that now they're making money?”

“He asked these types of pointed questions for about a year or year and a half until he gave up,” said one of his former colleagues.

“We just coasted for fifteen years because we were so strong. And it caught up with us,” agreed Bill Finnie, referring to the late 1980s and 1990s. “They really didn't have a strategy for about a decade or a decade and a half.”

To The Third's credit, there were legitimate arguments against some of these deals. The decision to expand into nascent emerging markets wasn't a no-brainer. The two giant brewers that successfully did so—SABMiller out of South Africa and InBev out of Brazil—had no alternative. They started out there.

“When you have a business that was as profitable as his was, where the returns are as strong as his were, I'm not sure anyone would have been so smart to say, ‘We've got to take over the world,'” said one Anheuser-Busch advisor. “We understand now why he should have, but it would have diluted his margins and diluted his returns. So it wasn't obvious. I think it's hard to criticize him for that, though it's very easy with hindsight.”

The Third had his staffers run the numbers on a range of deal-making possibilities over and over again. They considered everything under the sun. The verdict was usually the same. Why would Anheuser want to sink money into some risky foreign brewer when it could generate far more bang for the buck by investing its cash in the United States? International expansion didn't seem to make much sense at the time, at least in the short run.