Did Grupo Modelo want to save Anheuser-Busch?
If rumours are true that did the rounds in the United States last week, then Grupo Modelo was close to selling its shares to Anheuser-Busch in order to save its Big Brother from InBev´s unsolicited attention.
The ink on the USD 52 billion sales contract that sealed the fate of Anheuser-Busch had not quite dried on Monday 14 July 2008 when the Mexican brewer Grupo Modelo issued a tersely worded statement. It reminded both InBev and Anheuser-Busch that “our agreement with Anheuser-Busch was carefully constructed to ensure we have a definitive say in who our partner is."
Market observers scratched their heads. This statement was not only “bulls***” in the words of one brewer, it was also highly damaging, coming from amateurs as last week´s rumours were to underline.
It is true that Anheuser-Busch held a majority stake in Grupo Modelo (50.2 percent) and yet did not have a say in the running of the company. But there is no section in the initial agreement between the two brewers that gives Grupo Modelo the right to chose a partner.
Without doubt, Grupo Modelo could have spoilt InBev´s takeover fantasies if the Mexican family shareholders had decided on time to sell their 49.8 percent stake to Anheuser-Busch, thus making the erstwhile King of Beers a true and expensive heavyweight that InBev would have been unable to swallow.
That is why over the course of the past month or so Carlos Brito, the CEO of InBev, has repeatedly addressed Grupo Modelo´s CEO, Carlos Fernandez, reminding him not to sell to Anheuser-Busch. If Grupo Modelo wanted to sell out, said Mr Brito, it could do so after InBev had completed its takeover of Anheuser-Busch.
Carlos Fernandez, the youthful 41-year-old CEO of Grupo Modelo, has always brushed aside all allegations that he could be willing to sell and instead let the world know that Grupo Modelo was Mexican and would remain Mexican – an assertion that was not only presumptuous, given Anheuser-Busch´s majority stake, but also far from true.
As the Wall Street Journal revealed last week, August Busch IV, the CEO of Anheuser-Busch and Mr Fernandez were close to signing a deal in July that would have given Anheuser-Busch full ownership of Grupo Modelo.
Who finally prevented the deal from being clinched, we may never find out. Did Anheuser-Busch´s powerful institutional shareholders put their foot down and threaten August Busch IV, saying, “Eh August, don´t mess this up”? Or had Mr Fernandez got too greedy and attached too many conditions to a sale?
Be this as it may, neither Anheuser-Busch nor Grupo Modelo have issued denials that a deal has been in the works.
As if another rumour could undo the first, a story was leaked to the Wall Street Journal on Wednesday 16 July 2008 by people close to Valentin Diez, who happens to be Grupo Modelo´s major shareholder.
Mr Diez is not exactly a trustworthy character, to which his dealings in the Gambrinus affair testify. As we reported in 2006, it was with the help of sinister machinations that he ousted Grupo Modelo´s U.S. importer, the Gambrinus Company, after years of successfully growing the Corona business in the U.S., only to divert Gambrinus´ profits into Grupo Modelo´s coffers.
However, in this case there is little reason to doubt Mr Diez story, which will go down in history as “The Incredible Secret Story of the Fish that Got Away“. It refers to an encounter sometime in the early 1990s when August Busch III, the then CEO of Anheuser-Busch, wanted to up Anheuser-Busch´s stake in Grupo Modelo and to that end invited Grupo Modelo´s shareholders to a fishing trip off the coast of Mexico.
The trip was to last for several days. Alas, just as Mr Busch had hooked a big marlin he received a phone call. Apparently, he was to return to the U.S. immediately on important business. Mr Busch, not suffering from an underdeveloped ego, handed the rod to a surprised Mr Diez and told him to bring in the fish quickly so that he, August III, could get back to shore and fly home.
You can imagine what the Grupo Modelo shareholders felt like, many of whom sat on a personal fortune larger than Mr Busch´s. They felt offended. Hard done by. Insulted. Had not Mr Busch invited them to improve Mexican-American relations? Did not Mr Busch want something from them? Their shares, actually. So why did he treat them like servants?
Mr Diez, to cut a long story short, did not land the marlin. The fish disappeared into the depths of the Pacific within minutes.
The rumour of sales talks between Anheuser-Busch and Grupo Modelo taking place and the subsequent rumour of atmospheric tensions between the two seem to contradict one another - yet they do not rule each other out. Therefore, Mr Fernandez felt prompted to issue that incriminating statement on Monday 14 July, which, contrary to his intentions, points to the fact that “something rotten in the state of Denmark”, err, at Grupo Modelo has been going on.
Which is not good when you are dealing with InBev. Now everybody knows: The brewer Grupo Modelo, which is valued in excess of USD 20 billion and runs seven breweries in Mexico with an installed capacity of 60 million hl beer, is willing to sell itself.
Obviously, Mr Brito wants to own the rest of Grupo Modelo like Anheuser-Busch before him. And pronto. He does not want to have to faff around with refractory Mexican shareholders who insist on running the business in their Byzantine ways.
For years, analysts have accused Grupo Modelo of not being as efficient and lean as its Latin American peers, who have all adopted benchmarks set by super-lean AmBev. Which is unjust. People familiar with the matter say that Mr Fernandez has already brought in “the Brazilians” to modernise his company. The “Brazilians” is the industry nickname for ruthless cost killers who already call all the shots at InBev.
With their help, Mr Fernandez has cut costs and made Grupo Modelo a much more streamlined company than it was under the aforementioned Mr Diez whom he ousted some years ago in an effort to break with the past.
Unbeknown to most, Mr Fernandez has proven himself a disciple of Mr Brito´s creed. Whether that´s enough for him to retain operative control of Grupo Modelo, once it has fallen into InBev´s hands, lock, stock and barrel – who knows. Mr Brito cuts his rivals no slack. After the deal with Anheuser-Busch had been signed, he demoted August Busch IV to a non-executive board member of the new but clumsily called “Anheuser-Busch InBev”. The man, whom his minions have heralded as a marketing genius because he used frogs and nerds to sell beer, has been reduced to a paper shuffler: attending board meetings only to nod consent to Mr Brito´s strategies.
If last week´s rumours that Grupo Modelo was prepared to sell itself to Anheuser-Busch are true, then the assumption that InBev will soon gain the upper hand at Grupo Modelo is as plausible as an Amen in church.
Don´t forget, Mr Brito has inherited Anheuser-Busch´s option to buy the Mexicans´ half of Grupo Modelo if he can match another bidder´s offer. All Mr Brito has to do is to lean back and wait. Eventually, Grupo Modelo will fall into his lap.
Ina Verstl
