Dethroning the King (56 page)

Doug Muhleman, who pulled in $38.3 million when the deal closed, made a logical choice given his brewmaster credentials and moved back to his home state of California to grow wine grapes in Sonoma. Ensuring a good harvest can be stressful, but it doesn't hold a candle to Anheuser-Busch's long workweeks and treacherous internal politics. As one former executive said in reference to the BlackBerry he once carried and clicked through all day long, “I'm so glad I don't have one anymore.”

One Anheuser staffer broke the mold, however, and went on the offensive less than a year after the merger closed. Francine Katz, who had been Anheuser's chief communications officer, sued the company after claiming that she learned through merger-related regulatory filings that she and Marlene Coulis, the other woman on Anheuser's strategy committee, earned less than their male counterparts. She said Anheuser-Busch maintained a “locker room, frat party” atmosphere, and claimed that while she complained about pay disparities to The Third and to Dave Peacock on multiple occasions, her requests were “ignored or met with hostility and misinformation.”

InBev's takeover put August IV in a particularly uncomfortable spot. Between the day the deal was announced in July and the time it legally closed in November, he remained head of Anheuser-Busch. His responsibilities, however, were whittled down with each day that passed, and he had no real say on the new direction in which the company was heading. It was all about Brito from that July forward.

The day after the deal was made public, just a few minutes before Brito joined him to speak with a group of employees, The Fourth sat down for an interview with the
St. Louis Post-Dispatch
and unwittingly illuminated how difficult the transition would be. As he walked into the conference room outside his office and grabbed a chair at the head of the table, he paused, looked down at the chair, and said, “I don't know if I should put Brito here or not.” The Fourth acknowledged that day that it was “a difficult feeling, needless to say,” to weigh the impact of the sale of Anheuser-Busch on his family's legacy.

The Fourth's efforts during the merger talks to negotiate a consulting deal that would ease his transition paid off handily. He didn't exactly need the cash—thanks to the stock he held in the company, he made out with more than $91 million when the merger closed. Still, he accepted a seat on InBev's board for a three-year term, and agreed, at Brito's request, to advise InBev on new products and marketing programs and meet with the company's stakeholders and the media. In return, InBev handed him $10.35 million up front with the promise of an extra consulting fee of about $120,000 a month, and tossed in a personal security detail as icing on the cake. The deal tied The Fourth and InBev to a mutual “non-disparagement” covenant, which has limited what they can say about each other and bars them from uttering anything negative.

It makes sense to wonder why a man who was incredibly wealthy—and had just become much, much more so—wanted to be involved with the new company at all. He certainly wasn't tight with Brito and his crew, and it quickly became apparent that the services and advice he'd be providing would be minimal.

“There's a lot of emotion tied up in something like that,” said one person close to The Fourth. “I don't think that his involvement in the company, post-deal, has been incredibly robust. I think, if anything, the opposite. But at the time of the deal, he probably had a lot of mixed feelings.” A seat on InBev's board gave The Fourth a chance to stay associated with a company that meant a great deal to him, and he may have thought his presence there would provide useful continuity. More than anything else, though, the consulting deal looked like an expensive effort by InBev to keep up appearances after it wiped out Anheuser's entire board and most of its executive team. Busch was a no-show at industry events in the year following the deal, according to analysts and media outlets, and wasn't quoted in papers or photographed at meet-and-greets.

The names and faces of Anheuser's ninth floor occupants weren't the only things that changed once the companies' marriage was consummated. For decades, Anheuser's executives had roamed the halls of their headquarters in respectable coats and ties. It didn't take long for InBev's casual dress code to infiltrate their ranks, however. Most of the company's staffers now march around Anheuser-Busch's St. Louis campus wearing some variation on the decidedly unfashionable InBev uniform: jeans with tucked-in button-down shirts, their employee IDs clipped to their belts.

“If he was still there, I don't think he would feel too good about going to work in blue jeans,” Lee Roarty said as she nodded toward her sartorially savvy husband, Mike, her mouth pursed in distaste.

Brito got to work quickly on a slew of other physical and cultural changes that caused almost as much consternation in St. Louis as the takeover itself. Rather than chipping away slowly at Anheuser's layers of waste and making gradual shifts to keep employees from panicking, the Brazilians decided to blow everything up all at once. They took sledgehammers to the cushy, private offices that lined the hallways of Anheuser's executive suite—offices that had allowed staffers to go days at a time without encountering their colleagues—and supplanted them with a sea of community tables and tightly packed desks. Brito had no quiet office, or even a desk, of his own, and he wanted his new North American operation to reflect that team-oriented mentality.

“It looked like they had thrown a bomb on the 9th floor,” one top executive told a Brazilian publication. “There was mahogany everywhere.” Secretaries were fired, the company's luxurious furniture was auctioned off, and 40 percent of its employees' 1,200 BlackBerries were taken away.

Within months, perks like free tickets to St. Louis Cardinals games and Busch Gardens disappeared, as did the free beer that Anheuser-Busch had distributed to employees and handed out to customers at its theme parks. “I don't need free beer,” Brito had said. “I can buy my own beer.” The soccer park was signed over to the St. Louis Soccer United organization. A range of sports sponsorships were tossed to the curb. Even expenses like color printing and shipping kegs of beer via FedEx were curtailed. And Brito showed no qualms about tinkering with Anheuser-Busch's holiest symbols while looking to make an extra few dollars. Roughly a year and a half after the deal closed, the company confirmed that it had quietly started to charge $2,000 per day for Clydesdale appearances, reversing Anheuser's longstanding practice of absorbing most of the horses' costs itself.

Employees began to complain that morale in St. Louis was suffering, and InBev acknowledged that the moves might disenfranchise staffers who didn't appreciate its startup mentality. It shrugged off the criticism, however. InBev's performance demands were simply higher than Anheuser's had been, and staffers needed to be held more accountable.

With the rich price it paid for Anheuser, InBev gave itself no option but to cut deep toward the bone. It wasn't going to slash costs the traditional way—by ridding itself of overlapping operations—because the two companies had very few of those. “To pay off this thing, Brito is going to have to turn the company inside out,” said one longtime Anheuser advisor. “They're already selling off big hunks of the business.”

InBev used Anheuser's Blue Ocean plan as a road map and then pursued that agenda even more aggressively. “There's probably not a nickel of Blue Ocean they haven't delivered at this point,” said a person close to Anheuser-Busch. “I would bet you they've gotten literally every nickel of that and more. . . . It would have been harder, I think, for Bud to do it.”

The new company sparked an uproar from its suppliers when it announced it would take 120 days to pay its bills rather than 30 days, affording itself time to use that money for other purposes. Local electronics giant Emerson, whose executives had always had close ties with the Busches, launched a boycott in protest and stopped buying Anheuser-Busch beer for its headquarters, conference center, private jets, and even, ironically, its suite at Busch Stadium. One vendor of beechwood chips lost out when the company consolidated its vendor roster and closed up shop entirely.

St. Louis had fought Milwaukee for decades for the right to call itself the “beer capital” of America, but thanks to the Brazilians, that critical claim to fame vanished overnight. Residents who had always compared St. Louis to larger Chicago as an important Midwestern nexus began to worry that without an independent Anheuser-Busch, it could tumble down the roster toward the likes of Des Moines, Iowa.

It didn't take long for St. Louis's citizens to make their distaste for the new regime apparent. Anheuser-Busch's market share in the once loyal town, which had hovered at nearly 70 percent, fell in 2009 as sales at Schlafly, an independent local brewery, shot 38 percent higher. Schlafly's founder said nearly a thousand resumes from former Anheuser-Busch employees piled into his mailbox in 2009.

Brito's effort to tackle the most conspicuous example of Anheuser's excess, however—its fleet of corporate jets—moved much more sluggishly than many analysts had expected. Coach-class airfares quickly became the rule, and the company attested that it planned to eventually sell every plane in its fleet. Yet, more than a year after the deal closed in late 2008, it still owned a few planes and employed several pilots. When a local newspaper latched onto the apparent hypocrisy, InBev said it was “not in a rush to sell them” into a rough resale market, and a spokeswoman refused to address the exact number of planes that were either being sold or still being used. InBev still used the Anheuser jets “when it is a cost-effective option,” she said.

InBev put several large assets on the auction block to help pay off its massive debt to the banks that financed the merger. It sold Anheuser's 27 percent stake in China's Tsingtao, sold a few beverage can and lid making plants to Ball Corporation, and sold its own South Korean beer business for $1.8 billion to private equity firm Kohlberg Kravis Roberts & Co.

More critically for American consumers, InBev put the 10 heavily trafficked theme parks in Anheuser's Busch Entertainment unit—including its three SeaWorld locations—up for grabs soon after the merger closed. Just less than a year later, it announced it would sell the enterprise to private equity firm The Blackstone Group for up to $2.7 billion.

“It killed me to see they had sold those theme parks,” said one former ad executive. “The Busches were such outdoorsmen, and they were so committed to preserving the environment and working with and helping animals.” The Brazilians timed their sale well, however. Two months after the sale closed, an orca attacked and killed a female trainer at SeaWorld in Orlando, sparking a renewed round of protests over shows that feature such animals in captivity.

Brito's decision to cut Anheuser's top marketers loose also generated plenty of scorn. InBev needed to cut $1.5 billion in costs, and it was clear that Anheuser's massive advertising budget would come under scrutiny—particularly in such a rough economy. Brito had never hid the fact that he favored shooting far fewer commercials each year and employing fewer ad agencies than Anheuser-Busch used. Experts argued that chopping at Anheuser's ad budget and sticking gum in the gears of its creative process could permanently snuff out the fire that made Budweiser an American icon.

“What other brewer has gotten to 50 percent of the market?” said Charlie Claggett. “What's that worth, and what did they spend to get there? To me, that's how you do it. You can't do creative in a research laboratory. You can test stuff until you're blue in the face, and you end up with work that P&G does.” Some of InBev's success in selling Budweiser will forever be based on the global political climate, which puts it outside of InBev's control—a fact that its data crunchers may find difficult to stomach.

“The beer is such an American flag, it's such an icon, that your sales into each country really depend on what people think of America,” said Claggett, who worked on the Budweiser account in England for a while. “When America's stock goes up, sales of Budweiser go up. To talk about Budweiser as an international brand, like Heineken or Beck's, is a little bit naïve because none of those brands are as iconic as the red, white and blue Budweiser label.”

In one regard, InBev actually decided to lay out some cash. It signed a 10-year lease on 31,500 square feet of office space on Park Avenue in New York, pouring fuel on the speculation that Brito would eventually abandon St. Louis and shift Anheuser-Busch InBev's North American headquarters to the East where he was now based. Anheuser's St. Louis employees took particular offense to the news and ramped up their anti-InBev rhetoric, calling Brito “Carlos Burrito” and rechristening the company's famous One Busch Place address as “One Brito Place.”