It’s no surprise to us. We noted during the acquisition that InBev did not have a record of successfully growing brands. What it did have was a record of growth by acquisition. Nonetheless, David Nicklaus, a business columnist for the St. Louis Post Dispatch has done a nice, balanced job in looking at Anheuser-Busch InBev 10 years after the hostile takeover of the largest American brewer. You can read his analysis here.
A-B’s fate was sealed long before InBev appeared on the scene. Had A-B had two classes of stock, one with super-voting power controlled by the Busch family and one with little or no voting rights, A-B might well be an independent company today. Had August A. Busch III not listened to Wall Street advisors and eliminated the staggered board of directors, it would have taken InBev three years to seize the great American brewer.
But all of those are simply “if only” comments. When InBev made its move institutional investors controlled more than 60% of the stock. The Busch family controlled less than 5%. The institutional investors were rated on their quarterly performance, and they had been having a bad year. One fast way to secure their bonuses: vote to sell A-B to InBev.
Not only did the Busch family control only a small portion of the company’s stock, it also wasn’t actively involved in the business. Only two members of the Busch family sat on its board: August A. Busch III and his son, August A. Busch IV. There was no family shareholder committee, such as Brown-Forman formed a few years later.
You see this pattern repeated time after time. Whenever there is one class of stock, speculators (they’re called hedge funds, private equity, institutional investors, etc.) move in and force a company to take actions which compromise its ability to function in the long term.
The demise of Anheuser-Busch as a standalone company has an eerie parallel to the demise of Seagram Co. Ltd. In both cases, reins of the company were passed to a younger son who proved to be unable or unwilling to manage the business.
No one knows, of course, whether the old A-B management would have been any better than the management installed by InBev. After all, Jorge Paulo Lemann, co-founder of 3G Capital, which bought Anheuser-Busch and merged it with InBev, recently said:
“I’m a terrified dinosaur. I’ve been living in this cozy world of old brands and big volumes. We bought brands that we thought could last forever,” and borrowed cheap money to do so. “You could just focus on being very efficient… All of a sudden we are being disrupted.”
There are two lessons to be derived from the fall of Anheuser-Busch. The first is that a family that starts a business that grows needs to decide if it wants to retain control of the company, as the Browns have done with Brown-Forman and the Fords with Ford Motor Co. If the answer is yes, then they need to structure the company’s governance to ensure that while they may have economic partners, they never allow voting stock to scatter.
The second is that change happens. The economic conditions of today may not be the conditions in five years. You can’t simply have brands you think can last forever, because consumer tastes may change, as happened with the rise of craft beer, the rise of the cocktail culture within the alcohol beverage business, growing health concerns over sugary drinks affecting the soft-drink business or health concerns affecting mainstream grocery companies.
- T. Rowe Price, the Baltimore investment sage, got it right: “Change is the businessman’s only certainty.”