3G Capital aims to make Burger King a top brand in Latin America

October 29, 2011

The Burger King hamburger chain made a dramatic decision in August. It dethroned the King, the mascot who had danced through its advertising in various guises for more than 50 years. The marketing move was made by the struggling company’s new management, appointed after it was taken private in 2010 by 3G Capital, a New York-based investment firm with roots in Brazil.

The takeover means the chain has a new monarch: Jorge Paulo Lemann, the founder of 3G. Lemann, 72, is an iconic figure in Brazilian finance. In 1971, when Brazil was under military rule, he founded the country’s first modern investment bank, Banco de Investimentos Garantia. In subsequent decades, he emerged as one of Brazil’s most prolific dealmakers.

Lemann’s biggest transaction: the $52 billion 2008 takeover of Anheuser-Busch by InBev. InBev was itself formed from Belgium’s Interbrew and Brazil’s Cia. de Bebidas das Americas, or AmBev, the biggest beermaker in South America and the source of much of Lemann’s fortune. His stake in Anheuser-Busch InBev alone was valued at $8.9 billion as of mid-September. Burger King and his other holdings add several billion more.

AB InBev is the world’s largest beermaker, with more than 200 brands, including Budweiser, the best-selling beer in the United States; Brahma and Skol, the leading beers in Brazil; Beck’s; and Stella Artois. When he founded Anheuser-Busch in the 19th century, Adolphus Busch labeled his brew the King of Beers, a slogan that still appears on some Budweiser packaging.

One of Lemann’s admirers is oil-and-mining magnate Eike Batista, the richest man in Brazil.

“Jorge Paulo created a whole management culture in Brazil that is extraordinary,” said Batista, 54. “He motivated employees by letting them share the profits — aggressive, but that leads to results.”

Lemann is reclusive. He gave his last media interview in 2008 and declined to be interviewed for this story, as did his two longtime business partners, Marcel Herrmann Telles and Carlos Alberto da Veiga Sicupira.

Together, the three men run 3G and Stichting, a Netherlands-based firm that has a controlling stake in AB InBev. Through 3G and other private companies, they also own stakes in Rio de Janeiro-based retailer Lojas Americanas; Sao Paulo-based Sao Carlos Empreendimentos e Participacoes, a real-estate company; and Jacksonville-based CSX, a U.S. freight-rail companies.

Billionaire trio

Telles’s AB InBev stake alone was worth $3.95 billion as of mid-September, and Sicupira’s stake was valued at $3.2 billion.

“They are not about beer,” said Tom Pirko, founder and president of Bevmark, an adviser to the food and beverage industries. “And they are not about hamburgers. They are about money. They know how to cut costs. They know how to very aggressively push something.”

Lemann and his partners are known for their tough management style. That was felt right away at Burger King, which they bought for $24 a share from Texas-based private-equity firm TPG Capital and other investors and took private in October 2010.

At the time it was acquired, the company was a distant third in revenue and profits, behind competitors McDonald’s and Wendy’s, and losing ground. Bernardo Hees, a former chief operating officer of All America Latina Logistica, a firm Lemann and his partners once controlled, was named chief executive and quickly cut hundreds of jobs.

Most of the board members resigned, and the new management ended the company’s relationship with ad agency Crispin Porter & Bogusky — and then deposed the King mascot.

Pirko doesn’t think it’s a coincidence that Lemann and his partners first took control of a beverage company and then a restaurant chain. They have already moved to begin cross-selling between the two businesses. In April, Burger King signed up PepsiCo as the exclusive soft-drink provider for its restaurants in Latin America and the Caribbean. AmBev is the producer and distributor of Pepsi products in Brazil.

Hees has told investors and analysts that his plan is to make Burger King a top brand in Latin America within five years. He wants to open 1,000 restaurants in Brazil, up from 108 in mid-September.

Lemann, the son of a Swiss businessman who emigrated to Brazil, was a tennis pro before he moved into finance. He was Brazil’s top-ranked player five times from 1960 to 1972.

While pursuing his tennis career, Lemann attended Harvard University, receiving a degree in economics in 1961. After graduating, he worked as a financial columnist for the newspaper Jornal do Brasil. He left that post because he was pursuing a job as a broker at the same time, which his managing editor, Alberto Dines, saw as a conflict.

“If he had continued being a journalist, he was going to be a Joe Schmo,” said Dines, 79, who today runs “Observatorio da Imprensa,” a TV program and Web site. “I helped him become a billionaire.”

After 10 years at financial firms, Lemann founded investment bank Garantia in 1971. The military was running the government at the time, and markets were volatile. Weeks after Lemann, then 32, founded his firm, the Brazilian stock market fell 60 percent — and Lemann’s bank lost almost all its capital.

Modeled on Goldman

The bank survived, with Lemann trying to fashion it after big Wall Street firms such as Goldman Sachs, said Jose Olympio Pereira, who started his career at Garantia in 1985 as an investment analyst and left in 1998 as head of corporate finance. He’s now chief of investment banking for Credit Suisse Group in Brazil.

“Garantia was a paradise for ambitious, entrepreneurial people,” Pereira said. “This ‘virus’ of the Garantia culture infected the Brazilian corporate world. It is amazing the number of businessmen I work with who admire the Garantia model.”

Pereira is one of a dozen top business leaders and government officials who started their careers at Garantia. Another is Andre Lara Resende, who ran Brazil’s national development bank until 1998 and helped design the Plano Real, the 1994 economic scheme that broke the cycle of high inflation in Brazil.

Another is Arminio Fraga, who was chief economist at Garantia from 1985 to 1988 and went on to become head of Brazil’s central bank from 1999 to 2002. Fraga is now chairman of Sao Paulo-based BM&FBovespa, the operator of Latin America’s biggest stock exchange.

Fraga said Lemann made Garantia home to Brazil’s best and brightest.

“He always led by example,” Fraga said. “It was clearly a meritocracy, capable of attracting and keeping people with great talent and energy.”

Garantia landed assignments helping multinationals such as Colgate-Palmolive and Philip Morris, both based in New York, make acquisitions in Brazil. In 1998, Garantia was acquired by Credit Suisse for almost $1 billion.

Lemann, Sicupira and Telles went on to found the investment firm GP Investimentos, which they sold in 2004 so they could concentrate their energies on the $11 billion merger of Belgium’s Interbrew and Brazil’s AmBev.

Although the new company was based in Leuven, Belgium, the Brazilians took control of what was then the world’s second-largest brewer. They quickly imposed cost controls. The productivity of InBev employees, who were afraid of losing their jobs, improved substantially, said a person who was an Interbrew executive at the time of the merger.

In the next and final move that created the world’s largest brewer, InBev bought St. Louis-based Anheuser-Busch in 2008. Some 1,400 people quickly lost their jobs. Perks — including business-class flights, BlackBerrys and free cases of beer — were eliminated, according to a person familiar with the business who said he wasn’t authorized to speak publicly.

Even chief executive Carlos Alves de Brito, a former AmBev chief executive who has run the bigger company since the merger, was asked to fly economy class.

Prizes simplicity

Former colleagues say Lemann is a frugal executive who prizes simplicity. He doesn’t drive sports cars or collect expensive art, friends say.

“All that was not part of the Garantia culture — the showing off,” Pereira said.

The austere lifestyle paid off on one particular day in the mid-1980s. Lemann was driving his Volkswagen to a beach in Rio and stopped for gas, said Claudio Haddad, president of Insper Institute of Education and Research in Sao Paulo and a former chief executive of Garantia. As Lemann was pumping gas, bandits rolled up to rob the place, overlooking the billionaire in their midst.

“Since he was dressed casually and had an old Passat, they thought he was a nobody,” Haddad said.

Lemann’s three children by his current wife had a closer call. In 1999, a chauffeur was driving them to school in an armored car when kidnappers waylaid them on a Sao Paulo street. Eight gunshots at close range penetrated the window, wounding the chauffeur in the arm. He sped off, and the children escaped.

Since then, Lemann and his wife, Susanna, have divided their time between Switzerland and Brazil, and Lemann has made few public appearances except for charity events. On those occasions, the still tennis-slim billionaire eats and drinks little.

The beer and burgers his companies sell are strictly for customers.

The full version of this Bloomberg Markets magazine article appears in the November issue.

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