Jim Collins, author of the business classic book "Built to Last" and "Good to Great," is a friend of Jorge Paulo Lemann. After the forming of AmBev (ABEV, Financial), Lemann and Marcel Herrmann Telles would take the AmBev executive team to Colorado to take part in a workshop hosted by Collins.
During the 2002 workshop, Collins asked AmBev executives: “What is AmBev’s main problem?”
This question got Telles thinking hard, and he realized that AmBev’s problem might have been that it had excellent and ambitious young people, but there weren’t enough opportunities within AmBev for them to rise. The choices were clear: AmBev had to either take a big leap by making another transformative acquisition or to keep the current size and lose the PSDs.
They chose the former path and the target chosen was the European beer monster Interbrew, the third-largest brewery in the world. Similar to the situation at Brahma before the three partners acquired it, Interbrew was at a turning point. “Following a series of acquisitions in Eastern Europe, Asia and Canada, it seemed to have become a ‘federation of companies’ without a single culture. Investors have felt that it had paid a very high price for acquisitions around the world, which it had not managed to integrate.”
Also similar to Brahma, Interbrew was a family controlled business with more than 500 members from the Van Damme, Mevius and Spoelberch families. The family members had expensive habits and led luxury lifestyles. These family members instilled the opulence culture, which of course resulted in inefficiencies in the operation – a perfect project for Lemann, Telles and Carlos Alberto Sicupira. Thus AmBev embarked on an extremely complicated transaction in which more than 500 professionals participated. It was the biggest transaction in history involving a Brazilian company.
The Interbrew acquisition posed a unique challenge for Lemann, Sicupira and Telles. In previous acquisitions, they were able to swiftly impose the culture of meritocracy and frugality. With Interbrew, it was impossible to follow the playbook right away – Interbrew’s workers were used to stable employment and didn’t care about making more money; the Belgium government is able to guarantee health, education and security for all citizens; the top executives didn’t want to end the perks; employees at Interbrew thought the Brazilian’s meritocracy-based system was aggressive and too greedy.
“Subtlety, diplomacy and a certain amount of patience were essential. The game would have different rules from those which were accustomed. They needed to adapt to the new terms.”
Lemann, Sicupira and Telles started taking some of the three Belgian families to the workshop hosted by Collins. They created an integration committee to identify the best processes and people from each company. The Brazilians interfered little by little while at the same time gradually increasing their equity stake. Their progress and influence led the executives and employees who resisted the new culture to leave. As those people left, rooms were open for the PSDs that Lemann, Sicupira and Telles preferred. The best talents from AmBev would assume global positions at the top level at InBev. Three years after the merger, InBev’s culture was transformed by the Brazilians. Both top-line and bottom-line performance improved as a result.
Lemann, Sicupira and Telles were not satisfied – they had always had the big dream of becoming owners of the biggest brewer in the world. The creation and the transformation of InBev enabled them to take on the largest brewer in the U.S. – Anheuser-Busch (BUD, Financial), another family controlled business largely owned by the Busch family.
Anheuser-Busch was facing operational challenges just like Interbrew and Brahma. The Busch family had luxury habits and the business is not efficiently run at all. This created another perfect project for the 3G partners. In 2008, InBev bought Anheuser-Busch and created the largest brewer in the world. The Brazilian team carried out typical changes right after the acquisition: “The walls of the executives’ offices were pulled down to give way to a big room where they would now share the same table. The numbers of Blackberries in the executives’ hands fell from 1,200 to 720. The brewer’s fleet of planes was put up for sale and executives started to travel on coach class of commercial airlines. The free distribution of beer ended, as did the tickets to St. Louis Cardinals games. Around 1,400 employees – many of them with decades of service – were dismissed in the first weeks of the new management.” In less than a year, the new management team had cut $1 billion in costs and got rid of assets worth about $9 billion. Again, top line and bottom line improved; so did AB InBev’s share price.
From the late 1980s to late 2000s, it took Lemann and his two partners two decades to realize their dream of owning the world’s biggest beer brewer. They achieved this super ambitious goal through a steadfast belief in a meritocracy culture and variable-based remuneration system, a lifetime of learning from the best, an operational and hiring philosophy that attracts and retains the best young talent, a relentless pursuit of efficiency and a partnership that brings the best out of each other.
Disclaimer: All credit belongs to Cristiane Correa as my 3G partners case studies are based on summary notes I took from Correa’s book, “DREAM BIG: How the Brazilian Trio behind 3G Capital – Jorge Paulo Lemann, Marcel Telles and Beto Sicupira – acquired Anheuser-Busch, Burger King and Heinz.”
