• Home
  • About
  • Team
  • Contacts
  • Blog

Bitter Brew

  1. Home
  2. Blog
  3. Bitter Brew

Portfolio manager’s Letter March – April 2013

Bitter Brew and Dethroning the King

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 “Bitter Brew” and “Dethroning the King” to anyone with an interest in investment business studies. Together, “Bitter Brew” and “Dethroning the King” tell an important story about the growth and corruption of a great American Business.

“Bitter Brew” and “Dethroning the King” cover an important acquisition, but more than that, they describe a really good story with lots of plot twists 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.

Bitter Brew

“Bitter Brew” and “Dethroning the King” give clues as to the reason Warren Buffett has joined the Brazilians in his acquisition of Heinz. These are 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 into St. Louis on a commercial flight 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.

Dethroning the King

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 lower level 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 billion 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 only three senior level Anheuser-Busch managers remained.

Bitter Brew – August III

August Busch III is both the hero and the antihero of the “Bitter Brew” 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 with 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 of 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 also 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 – that mistake 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 in “Bitter Brew” also describes (but MacIntosh ignores) incidents “Fourth’s” life in which two of his girlfriends died. One in 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).

Bitter Brew – Grupo Modelo

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 several weeks to hammer out the details of a merger with Modelo, and when they finally managed to work out an agreement that was acceptable to the managements of both companies. Senior management in St. Louis started to celebrate, but when the agreement was presented to the Anheuser-Busch board, August III vetoed it.

We do not know his motivation for backing out, but back out he did. There is the suggestion that his decision was to simply to take his money and run, but is likely that there was more to it than that. Perhaps there was the fear that he had not left the company in the best of hands, and so accepting the AmBev offer was for him an easy way out of a bad situation.

A judgment of the Busch Family mentioned in “Bitter Brew” and “Dethroning the King” was that, the father and son were known around headquarters as “Crazy and Lazy”. Contrast this mention in “Bitter Brew” to the management philosophy of the new AB-InBev CEO Brito, from an interview he gave at the Stanford Graduate School of Business:

“success of a corporation hinges on hiring high-performing individuals, who bring passion and commitment to the job, and on building a company culture that keeps them.”

Plenty of corporate CEOs say they want employees who know how to have fun. But Brito, describing the demanding corporate culture he maintains, admits he doesn’t even like the word.

“I think fun’s too weak. … I have fun at the beach with my kids,” said Brito MBA ’89.

“I like people at the company to have fun, sure, plus passion, plus commitment, plus energy, plus lots of other things. Fun is too weak if you want to be best at what we do.”

While “Bitter Brew” story offers an object lesson in how success can spoil a really good business, it is not tragedy, at least if you were in a management position at Anheuser Busch. A few of the former princes of St. Louis feel they have be victimized by the Brazilians, but these victims walked away with enough money from their stock holding to substantially lessen the pain from their loss of power. August III received $427 million, Patrick Stokes, a longtime assistant to August III and CEO 2002 – 2006, received $160 million, August IV $91 million.

Upper level managers received $80 – $100 million and many lower level managers had stock worth $10 million and up. The real victims were the lower level employees who had no stock options, and the city of St. Louis. The management at AmBev is in no way responsible for that eventual outcome. The “Bitter Brew” story ended the way it did because senior management at Anheuser-Busch became a little too insular and a little too fond of their perks.

04/01/2013



Leave a Reply Cancel Reply

Your email address will not be published.


Comment


Name

Email

Url


Blog Archive

2020

  • The Stock Market

2019

  • Behavioral Investing

2018

  • Trumped
  • Warren Buffett vs Wall Street
  • Globalism, 1982-2000 Bull Market

2017

  • Volatility Underlying Calm Market
  • What’s new with CB&I?
  • Passive Investing
  • Economic Cycles
  • Current Stock Market 2017 Comment

2016

  • Global Plastics Summit Highlights
  • Value Investing vs Index Investing
  • How to Play an Index Bubble
  • Successful Investors
  • Is the Market Overvalued?
  • Operating Earnings
  • Article by investment manager in Bay Hill Living
  • Building Foundation

2015

  • 3G Culture – Dream Big
  • Myopic Loss Aversion
  • CBI Nuclear Energy
  • St Joe Company
  • What’s in a Word? Plastics.
  • Are Bonds Safer Than Stocks?

2014

  • Chicago Bridge and Iron
  • CAMEX 2014
  • Global Economy October 2014
  • Fluor Corporation
  • Interesting Quotes from Daily Journal Annual Meeting
  • The Daily Journal Annual Meeting
  • Albemarle Corporation
  • Triumph Group
  • The American Energy Revolution
  • Singapore

2013

  • St Joe Company Update
  • Hedge Fund Managers
  • Triumph Group Inc.
  • Bitter Brew
  • An Antifragile Portfolio

2012

  • Leucadia National Corporation
  • This Time it is Different
  • Successful traders psychology
  • St Joe Company
  • Learning from Pain

2011

  • Long Cycles – Part II
  • Long Cycle
  • Nasty Month for Market
  • Make a Buck with Fortescue Metals Group
  • Berkshire Hathaway Look Through Earnings
  • St Joe Company Inc
  • Successful Investment Management
  • A Look Into Latin American Market
  • The Mother of all Quarters
  • 2010 Investment year results

2010

  • Fault Lines
  • US Market 2010
  • Berkshire Hathaway Third Quarter 2010
  • The Stock Market 2010
  • Berkshire Hathaway Second Quarter 2010
  • Berkshire Hathaway Performance
  • Long Term Greedy
  • Goldman Sachs
  • Berkadia and Leucadia
  • USG corporation
  • Berkshire Hathaway 2009 2010
  • Why Capitalism Works

2009

  • The Lords of Finance
  • The $44 Billion Dollar Train Set
  • Berkshire Hathaway 3rd Quarter 2009
  • Career Risk for Investment Manager
  • Berkshire Hathaway financial statements
  • Berkshire Hathaway Preferred Stock
  • Moral Hazard
  • Credit Default Swap
  • The Shadow Banking System
  • Learning Things the Hard Way
  • Our C-System
  • 2008 Investment results

2008

  • Investment Risk
  • Bear Markets
  • Generational Events
  • Orange sheets – Money is doing better
  • Inflation Not The Problem
  • Tipping Point
  • Long Term Capital Management
  • Financial Insurance
  • Western Refining Inc
  • Berkshire Hathaway Year To Date
  • Berkshire Hathaway Cash Flow
  • 2007 investment results

2007

  • Investment results 4th Quarter 2007
  • Greenspan on Inflation
  • Berkshire Hathaway Third Quarter 2007
  • Berkshire Hathaway Operating income 2007
  • Berkshire Hathaway Hedge Fund
  • Leveraged Buyouts
  • Stability Unstable
  • Weak Dollar
  • Berkshire Hathaway Chairman’s Letter
  • Steel Dynamics
  • Breakwater Resources
  • 2006 Investment year results

2006

  • New Investment Stocks
  • Equitas
  • Berkshire Hathaway Third Quarter 2006
  • Hurricane Synergy
  • Berkshire Hathaway Second Quarter 2006
  • Fat Pitch
  • Perfectly Obvious
  • Berkshire Hathaway Growth Rate
  • Berkshire Hathaway First Quarter 2006
  • Berkshire Hathaway Annual Report 2006
  • Inflation Is
  • 2005 Investment year results

2005

  • Exogenous Events
  • The Easy Money
  • Look-Through Earnings
  • High-Risk Mortgages
  • Unintended Consequences
  • Rydex Ursa Fund
  • Warren Buffett Premium
  • Private Equity
  • Latticework Mental Models
  • Buffett’s Lackluster Performance
  • 2004 Investment year results
  • Professor Smith’s Second Bubble

2004

  • Hedging Currency Disaster
  • Risk Assessment
  • Too Many Bears
  • The Chinese Century?
  • Patterned Irrationality
  • Timber
  • Costco’s Cash
  • Physics Envy by Charlie Munger
  • Asset Allocation Berkshire Hathaway
  • The Balance of Payments
  • 2003 Investment year results

2003

  • Hedge Funds
  • The trade deficit is not debt
  • Secular Bear Market
  • Which Index Funds?
  • A Different Drummer
  • Costco’s Float
  • The Power of Float
  • Berkshire Hathaway Annual Meeting 2003
  • Psychology of Human Misjudgment
  • Sitting on the Sidelines
  • Berkshire Hathaway intrinsic value
  • 2002 Investment year results

2002

  • Insurance company Moats
  • Bond Bubble
  • Berkshire Hathaway Cash Flow 2002
  • Behavioral Economics
  • The Bear Market 2002
  • Greenspan Put
  • Second Quarter Cash Flow at Berkshire Hathaway
  • Berkshire Hathaway Annual Meeting 2002
  • Red Wire – Green Wire
  • Stupid FED Tricks
  • The Bottom Line
  • 2001 Investment year results

2001

  • Don’t Fight the FED
  • Buy and Hold? – It all Depends
  • Ben Laden and Berkshire Hathaway
  • The Dinosaurs Dance
  • Costco Moat
  • Bubble Watching
  • Sit on your Ass investing
  • Berkshire Hathaway Annual Meeting 2001
  • Carnival Cruise Lines
  • 450000 Square Ft Furniture Store
  • Lunch Money Indicators – Annual report
  • Other People’s Money

2000

  • Bear Tracks
  • Build It and Money Will Come
  • Efficient Stock Market
  • Style Drift
  • Lunch Money Indicators – Options
  • Identifying Problems
  • Small Retail Stocks
  • Charlie Munger comments
  • Big Al and the Bubble Machine
  • Berkshire Hathaway Cheap
  • Index Funds
  • 16 rules for investment success
Make an appointment or contact us by phone: +1 (689) 246 49 49
© 1999 - 2022 Losch Management Company
Support by Global AGM