Packer16 Posted December 23, 2009 Share Posted December 23, 2009 Do any of those who know Sadar well, know if he understands the insurance business? This is a different animal than the restaurant business where a turnaround (like at Steak and Shake) can generate alot of free cash flows and the results can be seen relatively quickly versus insurance where the results are based upon promises someone made years ago. My understanding of insurance is that culture, reputation and discipline of the firm that wrote the policies (i.e. the promises) is important due to the opaqueness and time lag associated with the real profitability of the policies and most times the culture comes from the top. My question is given that situation, why would you buy a firm where you remove the top guy (who established the culture) and try to run a business based upon his promises? Does Sadar have a group of insurance execs he can call on for due diligence and/or who could possibly run this business? It is one thing to run a franchised consumer oriented business (where management can damage but not destroy a franchise) but quite another to an insurance company (where management is the franchise as there are few other moats in the insurance business). Maybe I am missing something. Let me know. TIA Packer Link to comment Share on other sites More sharing options...
Parsad Posted December 23, 2009 Share Posted December 23, 2009 Do any of those who know Sadar well, know if he understands the insurance business? This is a different animal than the restaurant business where a turnaround (like at Steak and Shake) can generate alot of free cash flows and the results can be seen relatively quickly versus insurance where the results are based upon promises someone made years ago. My understanding of insurance is that culture, reputation and discipline of the firm that wrote the policies (i.e. the promises) is important due to the opaqueness and time lag associated with the real profitability of the policies and most times the culture comes from the top. My question is given that situation, why would you buy a firm where you remove the top guy (who established the culture) and try to run a business based upon his promises? Does Sadar have a group of insurance execs he can call on for due diligence and/or who could possibly run this business? It is one thing to run a franchised consumer oriented business (where management can damage but not destroy a franchise) but quite another to an insurance company (where management is the franchise as there are few other moats in the insurance business). Maybe I am missing something. Let me know. TIA Hi Packer, I'm not sure they are entirely different...in the sense that the end result is the outcome of culture, management, reputation and execution. Ajit Jain didn't know much about the insurance industry when he landed at National Indemnity. He was an engineer by trade and worked at McKinsey. Prem had no insurance background when he bought Markel. Just like Sardar didn't know much about flipping a burger or laying out a buffet, he has a couple of characteristics that usually leads to success...understands hard work, suffers from a chronic case of determination, and has an uncanny ability to learn quickly. When the CEO works like a madman and sets the tone, that will usually attract someone of a like-mind that wants to earn his/her approval. He'll find people to run it well. Cheers! Link to comment Share on other sites More sharing options...
Cardboard Posted December 23, 2009 Share Posted December 23, 2009 Sanjeev, Prem was not involved directly in insurance underwriting, but he worked for an insurance company for a long time which gave him contacts in the industry and I assume a good understanding on what needed to be done to make it a good business. You learn a lot by simply having lunch with co-workers working in a different area. He must have discussed with underwriters things like constraints on how much could be invested freely vs what had to be kept in cash or in safer assets to pay bills. "Prem Watsa's professional career began in 1974 when he joined Confederation Life Insurance Co. in Toronto, where he quickly moved from his position as an investment and research analyst to one of a stock portfolio manager for pension clients. His first boss at Confed, John Watson, handed him Benjamin Graham's The Intelligent Investor, the classic book of value investing. Watsa was a Vice President of Confederation Life Investment Counsel from 1974 to 1983." Regarding Sardar, he is really impressing so far. I thought that Steak N Shake could be turned around, but never that quickly, especially with such a tough economy. So personally, I am a bit disappointed to see him branching into insurance while SNS is gaining traction and could expand a lot accross the U.S. and Canada? making huge money for SNS shareholders. It is not a dying retail operation like Sears. Lots of potential IMO. Also, Buffett had to go into another business because Berkshire textile was dying. He ended up in insurance and having Jack Ringwalt helped him a lot being successful in that sector. Sardar has demonstrated talent in the restaurant business and I believe that he should leverage that. Lots of opportunities left there for someone who has learned how to do it. The share split and this move in insurance make me take a pause. He doesn't have to copy Buffett. He can be a star of his own if he does as Buffett which is to put one foot in front of the other every day. Cardboard Link to comment Share on other sites More sharing options...
Guest HarryLong Posted December 23, 2009 Share Posted December 23, 2009 Hi Y'all, A bunch of people have emailed me with questions. Please feel free to give me a call at 203-564-0258. To make a long story short, if you look at buildfremont.com , I think I go into a lot of detail about conversations with the CEO and other executives. I hope people zero in on premium growth vs. the combined ratio over time. I think some of the old Berkshire annual reports give some very interesting context for that debate--premium growth vs. profitability. Also, I have specific suggestions for risk control on a powerpoint which is on the left side of the webpage. The PDF version might have better formatting. I really appreciate everyone's support. I've heard from people from all over who have heard about the story. For a long time, it was a bit like being alone in the financial wilderness. But I suppose that's how all good stories start. What's the old saying?...if I may say so myself, "there is a certain nobility in the few who do battle against the many." The CEO....should he stay? I would rather people get some context on the website and come to their own conclusions. I don't want to put to fine a point on it, but I don't think it would be a mystery to anyone that I am not Dick Dunning's biggest fan. Cheers, Harry Link to comment Share on other sites More sharing options...
Parsad Posted December 23, 2009 Share Posted December 23, 2009 Hi Cardboard, Yes, Prem worked at Confederation Life, but on the capital allocation side...not underwriting. I'm not sure he would have gleaned any more insight into underwriting that Biglari could not gather from the long history of great property-casualty insurers, including Berkshire, Fairfax, etc. On the operations and administrative side, I think that is also why he is trying to keep existing management in place at Fremont, except for the CEO. People are worried that Biglari is going to spread himself out too thin. I don't think the general public understands that what makes Biglari tick is having his hands going on several projects at all times...and that he expects to be the best at virtually all of them, learning quickly and adapting. This guy needs to be busy...that's when he's at his best. Cheers! Link to comment Share on other sites More sharing options...
Parsad Posted December 24, 2009 Share Posted December 24, 2009 will someone chime in on Biglari's high salary? Is it deserved? Is it something to keep an eye on? Is he granted options? No options or benefits of any kind. He's underpaid at $900K a year...especially in light of what he's done at Steak'n Shake! He's saved thousands of jobs, as well as the company itself. Cheers! Link to comment Share on other sites More sharing options...
valuecfa Posted December 24, 2009 Share Posted December 24, 2009 He's underpaid at $900K a year Yikes, I wish i was that underpaid. :-\ Comparatively speaking he is most definitely underpaid relative to what other CEOs' make. Does he create more than $900,000 per year. Absolutely, by a long shot. Does this mean he is underpaid? I'm not so sure. Perhaps everyone else is just overpaid. Link to comment Share on other sites More sharing options...
Parsad Posted December 24, 2009 Share Posted December 24, 2009 His paper trail goes back ten years...I've followed him for about eight after meeting Sardar and Phil in Omaha. He had an IT consulting business that he sold when he was 19...that's about as dot.com as he's ever been. The one thing I always noticed and admired about him in Omaha is that he kept a very low profile. Unlike most money managers who attend, and are constantly handing out their business cards, Sardar kept to himself and watched what was going on. He could have raised three times as much money as the Lion Fund was managing, but that was not his game. Cheers! Link to comment Share on other sites More sharing options...
wabuffo Posted December 24, 2009 Share Posted December 24, 2009 I feel like a lot of the negative commentators are neglecting the investment portfolio and float that Biglari might be able to get his hands on with the acquisition. Depends on the cost of that float. What does Biglari know about underwriting P&C insurance policies and properly assessing the right premiums to charge vs risks? Even Buffett (as good as he is at assessing risk and probabilities) struggled with the National Indemnity insurance business after Ringwalt left the scene and before Jain was recruited. There was a stretch from 1974-1985 where the insurance biz's float growth was poor and cost of float often exceeded the 30-year T-bond rate. Schroeder in Snowball provides some interesting background on that period and you get the perspective that Buffett churned through managers and poor execution trying to get the business to work until Jain was brought on board. Insurance is not an easy business and many smart managers have wrecked their business chasing "float". Plus - I have a hard time seeing insurance regulators allowing Biglari to move FMMH's investment portfolio away from bonds and into equities. Buffett gets away with it because I'm sure the Nebraska regulators cut him a lot of slack, but after the AIG debacle, I'm also pretty sure that the state regulators no longer allow P&C insurers to take their assets and go to the "casino". Still, if Biglari gets FMMH at current prices (around 1x book) and leaves it alone, its still not a bad acquisition -- given that he's paying for half of it with stock selling at 1.6x tangible book value. But it looks like it will be hard to acquire at 1x book. I think its interesting that he purchased 9.9% and not more than that - it might give a clue to his intentions. wabuffo Link to comment Share on other sites More sharing options...
txlaw Posted December 26, 2009 Share Posted December 26, 2009 How long is Biglari's paper trail? How many years have some of you been following him? I read that he invested in dot.com. what is that all about? I read the Lion Fund letters for the first time a couple of days ago. I was quite impressed -- Biglari certainly thinks the right way about investing. You could already tell this by looking at his shareholder letters and some of the interviews he's given. But the Lion Fund letters clinches it for me in terms of his investing skills. Now, the worries about his getting involved in insurance are well taken. It's a difficult business, and it would be nice to get some clarity on how FMMH would operate going forward if the acquisition is successful. What will Biglari's role as CEO entail? Is he going to bring anyone new on board to fix whatever may be wrong with Fremont? Does he agree with Harry Long's view on what FMMH's strategy should be going forward? Will the investment portfolio be managed in house or by some other entity (i.e., the Lion Fund)? I'm looking forward to hearing more about Biglari's thoughts on the acquisition and his response to the board's rejection of his initial offer. Link to comment Share on other sites More sharing options...
Mungerville Posted January 4, 2010 Share Posted January 4, 2010 Can anyone give a long-term high-level account of his investing track record? From the start-up of the Lion Fund to present. Just a high-level. Also, anything that stands out in terms of his character? Link to comment Share on other sites More sharing options...
Guest HarryLong Posted January 4, 2010 Share Posted January 4, 2010 I have up a new update on my twitter feed, which is: ContrarianCEO The feed can also be seen on the blog section of: BuildFremont.com Some interesting quotes on the link on my latest post. Cheers, Harry Link to comment Share on other sites More sharing options...
Daytripper Posted January 13, 2010 Share Posted January 13, 2010 I thought we would have heard a reply from SNS regarding Fremont by now. A higher offer, or maybe a rescission/retraction of the original offer. Link to comment Share on other sites More sharing options...
valuecfa Posted January 13, 2010 Share Posted January 13, 2010 I thought we would have heard a reply from SNS regarding Fremont by now. A higher offer, or maybe a rescission/retraction of the original offer. Or maybe a proxy or creeping tender is in the works. Link to comment Share on other sites More sharing options...
Ballinvarosig Investors Posted March 22, 2010 Share Posted March 22, 2010 I see that FMMH has taken a bit of a pasting today - I just snagged a few shares at $22.05. Crazy price considering it has a P/E of less than 10, has a book value of just over 0.8 and has been conservative in its investments. I don't see why Biglari doesn't just buy on the open market as investors clearly don't value the company. Link to comment Share on other sites More sharing options...
Nnejad Posted March 22, 2010 Share Posted March 22, 2010 As i remember, there was a 10% ownership rule which prohibits him or any one party from acquiring over that amount. Link to comment Share on other sites More sharing options...
txlaw Posted March 22, 2010 Share Posted March 22, 2010 Yeah, I believe you have to get the state insurance commissioner's approval before going over 10%. Link to comment Share on other sites More sharing options...
mmiller Posted March 23, 2010 Share Posted March 23, 2010 If Mr. Biglari's desire is to own FMMH outright I do not think he will acquire additional shares in the company on the open market that would result in him owning more than 10% of the company. To go over 10% I believe he would have to receive state approval, but I don't think that is such a great barrier. I think the bigger issue would be the position that would put him in as it relates to the burden required to approve any business combination. See the exerpt below from the company's original S-1: Business Combinations. The Holding Company will be subject to the provisions of Chapter 7A (the “Business Combinations Act”) of the Michigan Business Corporation Act. The Act contains provisions which generally require that business combinations between a corporation which is subject to Chapter 7A and an owner of 10% or more of the voting power of the corporation be approved by a very high percentage of the shareholders. The vote required is the affirmative vote of at least 90% of the votes of each class of stock entitled to be cast and not less than 2/3 of the votes of each class of stock entitled to be cast by shareholders other than the 10% owner who is a party to the combination. The high vote requirements will not apply if (i) the corporation’s board of directors approves the transaction prior to the time the 10% owner becomes such or (ii) the transaction satisfies the specified fairness standards, various other conditions are met and the 10% owner has been such for at least five years. On the other hand, if Mr. Biglari does not intend to make a further run at the company and would like to own a larger stake perhaps he would acquire additional shares in the open market. mmiller Link to comment Share on other sites More sharing options...
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