Biglari 2017 annual meeting NYC

[OracleofCarolina]

Hi,

 

Thought I would share a few notes. NYC in April is usually a great time to visit the city and the weather was awesome. Much better than what I am getting in Washington this year :). Also checked out a show on the Upper West Side at the Beacon theater and ran into Doug E Fresh of all people(cool to me, but most of you probably have no idea on who that is :)

 

Anyways, the meeting was at St Regis on the roof level this year. Bigger room and much more space.

 

Biglari showed some slides at the beginning hinting that BH is undervalued. There were some slides showing performance figures for the investing side and the BH stock side.

 

He then described how he did not do his job on the operational side for SNS. He said they don't have a brand problem but an execution problem. Most of the underperforming stores have higher turnover and they are addressing. New menu items coming out, improvements in quality on the cheese..bacon..etc, and a new menu.

 

There was some questions on the "net outstanding shares" and essentially Biglari said read the 10-k.

 

Maxim is fixed on the publication side and mostly breakeven. The expenses are about 10 million a year now and revenues are similar.  If they are not making at least $1 million a year by 2019 then it will be a mistake(seems like the goal posts have changed)

 

If they sold CBRL stock, they would pay 35%. Also, the prepaid forward contract is coming up and they would owe taxes at 35% if they delivered CBRL shares to JP Morgan. The dividends they get from CBRL are only taxed at 11% dues to corporate exclusion.

 

They are scaling SNS in France and also focusing more on universities.

 

Holler and Dash is a terrible idea. CBRL should be focusing more on productivity instead of this idea.

Biglari quoted lots of page numbers from Distant Force and Teledyne annual reports. Also shared how much he admired Steve Wynn.

 

The board is discussing a dual class structure, removal of the cap on Sardar's compensation on the operation side and removing the licensing agreement. Sardar sounded like this was a done deal but Phil seemed to imply it was not.

 

I left a little early so I missed some things. All in all, it seems like BH is undervalued as long as CBRL does not blow up, but the "biglari discount" may widen when the dual class and compensation structure changes.

[gfp]

"the "biglari discount" may widen when the dual class and compensation structure changes."

 

At this point it's pretty much "what's the difference?"  He has been telegraphing his intention / desire for dual share class for years now and since he already gained himself 'control', nobody really thought he was going to give that up to do a deal with equity.  The tax talk makes it sound like he has decided not to deliver shares into the CBRL forward.  We'll know fairly soon.  CBRL looks like it wants to go up, who knows...

 

His compensation is essentially the same as Sanjeev's as I understand it.  It's just that the capital wasn't put under his control willingly with that comp structure.  (at MPIC, not PDH)

 

At some point someone needs to ask him if being a greedy asshole is worth the reputational damage of not being offered any businesses worth buying.  The assets are certainly trading at a large discount though, and I can clearly understand the reason for it.

[bci23]

 

At some point someone needs to ask him if being a greedy asshole is worth the reputational damage of not being offered any businesses worth buying. 

 

Biglari is basically a lock to become a billionaire and I think that was his only goal from day 1, he obviously doesn't care if his reputation is destroyed and doesn't care that nobody wants to do business with him anymore and he'll never be able to create the next Berkshire blah blah, it was never about that. He wanted to become a billionaire and nothing else and he's set up a path for that to happen. Many people have thrown away their reputation for much less and you only get one chance to cash in on your reputation, at least he made it worth it (in his mind)!

[gfp]

Its going to be tough to make it to ten digits without people wanting to do business with him.  But I do expect him to be largely rational as far as his self interest goes.  Several articles over the years have already termed him a 'billionaire' so I guess he has put that image out there (he's not anywhere close).  You know, like founder of the company. 

[Txvestor]

Of course he would say the shares are undervalued. What else could he say? The share price has gone nothing but sideways in a market that had inexorably ground higher during that time period. Value is all in the eye of the beholder. Alas Mr Market may very well be assigning a discount for his asininity and greed. There is also clearly a control premium that has been wrested from the shareholders, esp. in the setting of a board that has not distinguished itself as independent, and the reason he gives for sticking with CBRL ie to avoid taxes seems less than ideal.

His point about poor execution at SNS is inexcusable given his lavish compensation, but of course neither the board nor the shareholders are capable of questioning that in any meaningfully relevant way or addressing it. He will almost certainly implement the dual share structure in due course so that he can keep control yet raise additional captive capital with which he can pad his compensation without question.

I suspect we are about to hear the words "undervalued" and "below intrinsic value" a lot and for a very long time going forward, I mean longer than most people's investment horizon. I mean at some point it gets old and irrelevant if it goes on in perpetuity right? We are 5+ yrs and counting. To my eyes there is no end in sight.

[OracleofCarolina]

http://investor.cbrlgroup.com/releasedetail.cfm?ReleaseID=1027491

 

CBRL's operations seems to be much more productive than Steak N Shake....maybe someone from CBRL should join the BH board of directors??

[OracleofCarolina]

http://www.prnewswire.com/news-releases/biglari-holdings-inc-to-acquire-pacific-specialty-insurance-company-300464242.html

 

Finally getting into the insurance bizness.....value investors seem to flock to insurance companies like a moth to flame :)

[InelegantInvestor]

http://www.prnewswire.com/news-releases/biglari-holdings-inc-to-acquire-pacific-specialty-insurance-company-300464242.html

 

Finally getting into the insurance bizness.....value investors seem to flock to insurance companies like a moth to flame :)

This is the second insurance acquisition. Strange deal structure- seller financed, including a large donation to Notre Dame. Less than 10% upfront.

Nothing whatsoever about the financials of the company- very hard to evaluate.