Parsad Posted December 16, 2009 Share Posted December 16, 2009 The Indianapolis Business Journal has an article on the Steak'n Shake 20-for-1 reverse split. The article calls the move unprecedented for a stock that is not distressed and trading well above $1/share. Does anyone else know of a company that has ever done this in this situation? Did Teledyne do the same thing at one point? Cheers! http://www.ibj.com/steak-n-shake-reverse-split-makes-perfect-sense/PARAMS/article/15146 Link to comment Share on other sites More sharing options...
Cardboard Posted December 16, 2009 Share Posted December 16, 2009 “Retail investors aren’t going to spend $240 a share,” Foster said, “so it’s a move that will eliminate a lot of the retail investors [in favor of] a lot of institutional investors.” “We are seeking to assemble and align ourselves with long-term investors whose purpose is to prosper in concert with the company,” Biglari wrote. “The change, we hope, will dissuade speculators from participating in our stock.” Getting rid of retail investors and favoring institutional investors... What a great concept! If history has taught us anything, it is that mom & pop's are the long term investors. They are the true buy and hold investors. They are the ones who have experienced fully the lost decade. How did Biglari get started? With multi-billion dollar investors? Another lesson from history: Fairfax. That stock was priced high in 2002. Did it make a difference to short sellers and other speculators? They did participate all right! The reality is that Fairfax's results were terrible and the company was in serious danger because of acquisitions made by management and other events such as 911. I don't understand this attitude of retrenching and even less of favoring institutional investors. IMO, produce good results, explain your moves to prevent questioning and speculation or total transparency and the share price will head in the right direction. Cardboard Link to comment Share on other sites More sharing options...
dcollon Posted December 16, 2009 Share Posted December 16, 2009 I have to say I don't necessarily agree that a higher share price favors Institutional investors over Retail investors. It's my understanding that Sardar is simply trying to find shareholders that think longer term and with a lower share count he believes SNS will attract people or institutions that are patient. I highly doubt he is trying "to get rid of the retail investor". Since we manage institutional money I have to say I disagree that this move favors institutions. Since liquidity is a necessary evil in our business a less liquid stock is not viewed positively. It makes it tough to buy without moving it and it makes it tough to exit as well. We all wish we had clients that had 10 year plus time frames, but that's not realistic in the "what have you done for me lately" world of investing. To me a less liquid stock favors the intelligent passive retail investor over the institution. Link to comment Share on other sites More sharing options...
JAllen Posted December 16, 2009 Share Posted December 16, 2009 Can someone help me understand how this might reduce speculation? I am not saying this with the belief that it won't I just can't think of anything that it will do. It's possible to buy less than a round lot and $250 or so I think is greater than the minimum trade for virtually everyone, no? And the idea that a higher stock price prevents manipulation/speculation is certainly disproven with the Fairfax example unfortunately!!! Link to comment Share on other sites More sharing options...
bargainman Posted December 16, 2009 Share Posted December 16, 2009 I agree with everything you said Cardboard. I guess there is a case to be made for lack of liquidity driving the institutional investors out. There is however also a case to be made for low share count increasing volatility significantly. Look at SHLD. Eddie and Bruce own so many shares that the float is so small that any significant buying or selling rocks the stock. I must say I'm disappointed. Not only because I can no longer sell premium (sell options) on the stock to acquire it and generate income, but also because this is totally unnecessary. As Cardboard pointed out, FFH's high price certainly didn't dissuade speculators from attacking the stock. Mass speculators are more likely to be institutional with large amounts of money, and the lower share count and reduced liquidity may actually be attractive to the shorts. The other thing is that to me, why is Biglari spending money and time on this? The shareholder friendly thing to do is to run the business and just not split the shares every in any direction. Spend no time on it, and no money on it, just run the business. The act of actively reverse splitting the shares is just illogical. It's no better in my opinion than the act of splitting the shares. sigh... Link to comment Share on other sites More sharing options...
bargainman Posted December 16, 2009 Share Posted December 16, 2009 The other thing that bugs me is that one of the problems with WEST was it's low liquidity. One could argue that the tender offer for ITEX was hampered by the fact that WEST had lousy liquidity. Now he gets a company SNS which has high liquidity, and he wants to lower it? Maybe SNS is so big that a reverse split makes no difference, or maybe he'll not want to ever do a tender offer, but it just seems odd to me... Link to comment Share on other sites More sharing options...
CONeal Posted December 16, 2009 Share Posted December 16, 2009 I feel the 1-20 split is a bit much. I don't agree with Sadar's thinking regarding the split. A 1-2 would have been fine with me b/c there would still be liquidity in the market. Reducing the share count that much will drive people away b/c it will be such a pain the the ass just trying and accumulate a position. If a person wants to buy a SNS share he/she is virtually guaranteed having to overpay for the share b/c it will be purly driven by supply and demand (much like the hot toys during Christmas season) not by the fair value of the company. I would be happier if he didn't worry about the stock pice and focused on creating value for the company. By creating value in the company, sooner or later it will be reflected in the pps. Sadar will never get rid of spectulators no matter how hard he tries. In my eyes all he is doing is inviting speculation into the stock now b/c it will be alot easier to move the stock. Yes, I do own shares Link to comment Share on other sites More sharing options...
Parsad Posted December 17, 2009 Author Share Posted December 17, 2009 It's not going to be any easier or harder to move the stock with the reverse split. WEST had a liqudity problem because Sardar, Dash & Shawn Sedghat owned well over 50% of the company...not unlike Sears and ESL. All former WEST shareholders and current Lion Fund partners, combined with Sardar, Dash, Sedghat, Cooley, Linnartz, etc, will own only about 18-20% of Steak'n Shake. If someone wants to buy a million dollars worth of Steak'n Shake, they will have no difficulty whether the stock is at $12 and 28M shares are outstanding, or $240 and 1.4M shares outstanding. Cheers! Link to comment Share on other sites More sharing options...
beerbaron Posted December 17, 2009 Share Posted December 17, 2009 I never understood all those fights about stock splits, the way I have always seen it is a company should make a stock slip when it becomes too expensive for a small investor to take position, BRK.A is good example. Why should I be constrained to BRK.B which hold less voting rights per $ then BRK.A just because I'm not a millionaire? Plus the incremental cost of a 100k stock is quite high, if I have 180k to invest then I can only buy one share... what am I going to do with the remaining 80K? This is no petty change to leave a at 0% bank account. On the other note, SNS will now have reduced liquidity which means weirder valuations and less analyst following it. This is music to my ears. BeerBaron Link to comment Share on other sites More sharing options...
ragnarisapirate Posted December 17, 2009 Share Posted December 17, 2009 As Sanjeev said, it won't be much more difficult to buy a million dollars worth of stock. I don't really see why it would be harder to buy a few thousand dollars worth either. I am guessing that the liquidity won't go down by much more, if any, than the outstanding shares (as a percent). We probably have quite a few years to go until a single share of SNS is un-purchasable to average people. I don't really understand why individual investors wouldn't want to buy shares, for example: if a person has 1K to invest, they can (post split), buy a share of SNS, with the holding making up less than 1/4 of their portfolio- hardly much of a problem, as the company will (hypothetically) be diversifying for you... I am kinda disappointed in that this move will discourage some speculation; I really want for there to be a ton of volatility in the price of this company; I would love to be able to sell it @ 2x my estimation of intrinsic value, then buy it back for 1/2... I would love to see SNS at 3 bucks a share again! I seem to remember reading about a mutual type fund that had a product that would let you buy fractional BRK shares. Maybe something like that would happen with SNS (or a basket of high priced stocks) someday? Another good feature of the reverse split, is that the partial shares will probably be paid off in cash from the company, having a super minor share repurchase effect. ;D Link to comment Share on other sites More sharing options...
Investmentacct Posted December 17, 2009 Share Posted December 17, 2009 Might not be much of relevant now,but, as matter of fact, in past Sardar had done reverse split with Western Sizzlin in 2006, it was 10:1 while SNS will have 20:1. http://tinyurl.com/yauryrz Link to comment Share on other sites More sharing options...
bargainman Posted December 17, 2009 Share Posted December 17, 2009 We probably have quite a few years to go until a single share of SNS is un-purchasable to average people. I don't really understand why individual investors wouldn't want to buy shares, for example: if a person has 1K to invest, they can (post split), buy a share of SNS, with the holding making up less than 1/4 of their portfolio- hardly much of a problem, as the company will (hypothetically) be diversifying for you... Not if you want to use options. 1 contract = 100 shares, which at 20 to 1 goes from 1.3K up to 25+K per contract :-P Link to comment Share on other sites More sharing options...
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