Posted November 2010
If her-indoors is bugging you for what to give you for Christmas, let her
buy you a book. It’s called “Dethroning the King” and it has
just come out. It is the inside story of the fall of the house
of Busch by the American journalist Julie MacIntosh. I recommend
this book most highly. Ms MacIntosh, who at the time covered the
Anheuser-Busch takeover for The Financial Times newspaper,
brings to life boardroom intrigue, dysfunctional family dynamics
and a complacent parochial corporate culture in her lively,
meticulously researched book.
Please don’t tell your wife, though, that the book will turn you into a
total party pooper. The detailed account of how Anheuser-Busch’s
initial resistance was swept away by the Brazilians in merely
six weeks will keep you glued to the 350 pages for hours on end.
But what can be more exciting? Certainly not having to do the
barbeque or talking to the in-laws, eh?
How did Anheuser-Busch (A-B), with a dominant market share in the world's
largest beer market, a legacy of marketing brilliance, a strong
distribution system and generations of family management,
suddenly seem so powerless to resist a buyout in the summer of
2008? In “Dethroning the King: The Hostile Takeover of Anheuser
Busch, an American Icon” Ms MacIntosh provides several answers.
A-B founded the eponymous brewery in St. Louis in the 1850s, but the
company went on a tear under the leadership of August Busch III.
August III, born in 1937, didn't graduate from college. But he
was an iron-fisted boss with a flair for marketing, who
preferred to surround himself with bootlickers, which included
A-B’s board.
Between 1980 and 2002, when August III stepped down as CEO, A-B's market
share in the U.S. rose from 28 percent to 50 percent, thanks in
large part to the runaway success of Bud Light.
Like many U.S. industrial titans of the World War II decades, August III
wasn't much interested in international expansion. Although he
had lots of options to clinch foreign deals he was incredibly
risk-averse. His horizon, as viewed from St Louis, stretched as
far as Milwaukee, the home of Miller Brewing, his arch rival.
That ultimately proved A-B’s downfall. He thought the U.S. was the world
while the real world had become global and the U.S. a tiny yet
profitable Switzerland in comparison.
Whilst August III tried to crush Miller underfoot, his rivals, empowered
by global acquisitions, grew bigger and more numerous. In May
2002, about the time when August III retired, South African
brewer SAB bought Miller and Belgian brewer Interbrew prepared a
merger with Brazil’s AmBev.
What I found particularly revealing were the passages dealing with A-B’s
shareholders – mostly institutional investors. They allowed
August III and his son August IV to run the company like their
personal fiefdom although the Busch family only controlled about
4 percent of the shares.
With his playboy image and tragic past, August IV wouldn't have made CEO
material if he had had a different name. As industry observers
had known for a long time, August IV as CEO was really out of
his depth. With the blessings of A-B’s board, August IV, then
42, took the reins of A-B in 2006, at a time when the firm was
in big trouble. A-B had slipped from the largest beer company in
the world to the fourth largest. Its market share in the U.S.
had nowhere to go but down. To aggravate his situation, August
III as father and member of the board routinely undermined
August IV’s authority.
In June 2008, when InBev made an unsolicited offer of USD 65 per share,
A-B tried to fend if off by engineering a quick acquisition of
Mexican brewer Grupo Modelo, reasoning it would make the
combined company too big for InBev to swallow. But the deal fell
apart, thanks to August III’s machinations. By July, when InBev
raised its bid to USD 70 per share, the drama was over.
“Dethroning the King” is strongest in its analyses of the manoeuvres of
A-B’s board, which makes you wonder, in a general sort of way,
whose interests company boards protect except their own.
The message that Ms MacIntosh gets across is that motivations all-too
human led to A-B’s ultimate fall: arrogance, vanity,
pig-headedness, provincialism.
InBev probably thought they had a much more cunning and resilient
adversary in A-B. How they were deluded.
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