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Stocks B / Berkshire Hathaway
|Subject: "Bitter Brew"||Date: 4/2/2013 11:04 AM|
|Author: rclosch||Number: 200648 of 224949|
Two good books have been written that cover in detail the acquisition Of Anheuser-Busch by AmBev. They are “Bitter Brew” by William Knoedelseder, and “Dethroning the King” by Julie MacIntosh who is a journalist for the Financial Times. I would recommend both books to anyone with an interest in business studies. Together these books tell an important story about the growth and corruption of a great American Business. These books cover an important acquisition, but more than that, it is a really good story with lots of plot and many interesting characters, five generations of nepotism, punctuated with serial philandering, bitter divorce, substance abuse, gun mishaps, and untimely deaths. This is a story that details many of the ways to build a wonderful business and then screw it up.
Together the books give clues as to the reason Buffett has joined the Brazilians in his acquisition of Heinz. These are the essentially the same people that built Ambev before it became AB InBev. Upon the arrival of the Brazilians at Anheuser-Busch after the completion of the $52 billion buyout the restructuring was complete, swift and merciless. Busch executives got their first hint of the new management style three days after the merger agreement was announced when their new CEO Carlos Brito flew in St Louis commercial and booked a room at the Holliday Inn. Not only did Busch executives not fly commercial but many of their wives had not been on a commercial flight in years.
Brito arrived in St Louis in November of 2008 at the height of financial crisis and before long Inbev had announced the buyouts and retirements of 1000 upper level employees and management, together with layoffs of 1400 additional employees. Also assigned to history were most of the employee perks and private offices. The new management took a sledge hammer to the expensively furnished private offices on the fifth floor of Anheuser-Busch’s headquarters and replaced them with one large open room with tightly packed desks and long tables. Also gone were 1200 Blackberries, free tickets to Cardinal games and free beer for employees. Inbev eliminated 1.5 billion in annual expenses sold Busch’s theme parks for 2.6 and rapidly reduced AB InBev’s debt from $56.6 billion in 2008 to 30.1 Billion at the end of 2012. When the restructuring was complete on three senior level Anheuser-Busch managers remained.
August Busch III is both the hero and the antihero of the story. He built the Budweiser brand into one of the best known in the world. He was a universally feared workaholic who had a tendency to behave as a king ruling will absolute power. In his 27 years at the top of Anheuser-Busch he built the company’s share of the American beer market from 28% to 54%, an incredible market share for a simple consumer product in a very competitive market.
“The Third” as August III was called, was a fierce competitor, and the company became very profitable under his direction. This success allowed the company to build in a very expensive life style. In addition to his undeniable business skills The Third had inherited the family’s taste for expensive perks (he flew his personal helicopter to work every day in order to avoid St. Louis traffic). For the length his reign from the palace in St Louis he ruled over a court of well-paid vice presidents who oversaw not only the beer business but, the Busch Gardens theme parks in Virginia and in Florida. It was a first-class operation all the way. There was a fleet of Dassault Falcon corporate jets with a staff of 20 waiting pilots. $1,000 dinners, bullet proof Escalades with drivers, hunting lodges, sky suites at Busch Stadium. Every refrigerator at corporate headquarters, on the corporate jets or in the homes of the executives, was well stocked with free Bud, Bud Lite and Michelob.
While the company’s life style made it vulnerable to a takeover by a well-managed cost cutter like AmBev, this was not The Third’s biggest mistake, this was that he ignored the globalization trend that was going on in the beverage business in the 1990s. If he had been aggressively expanding in Europe during the nineties it might have been Budweiser that acquired AmBev in 2007.
The fate of Anheuser-Busch is what results when a company coasts on its reputation and ignores global markets. Despite its reputation as an all-American business idol, Anheuser-Busch by 2007 proved to be a decaying family dynasty unable to compete on the world stage.
The idiot that eventually arrived on the scene was “The Third’s” son August IV or “The Fourth”, who became CEO in 2006. He was not really an idiot; he just had a strong tendency to act like one. The Fourth’s definition of fun included lots of booze, babes, fast cars and drugs. MacIntosh does not mention the drugs in her book but in “Bitter Brew” Knoedelseder quotes associates who claimed that “The Fourth” showed up stoned at various business meetings and social functions. Knoedelseder also describes (but MacIntosh ignores) incidents “Fourths” life where two of his girlfriends died. One an auto accident when August IV was driving her home from college party (an incident very neatly covered up by daddy). The other was a drug related death in his home after the merger was completed (again daddy intervened to hush the incident up)
The Fourth had been CEO a little over one year when he received the buyout offer from AmBev. His defense was to pursue a buyout the Mexican brewer Grupo Modelo. A plan that if it had completed would have made AB too expensive because AmBev would not have been able raise enough money to buy the company that resulted from a merger of Modelo and Anheuser-Busch merger.
The Company’s Lawyers and Bankers worked around the clock for sever