BH-Assets Worth More Than Book May Equal Huge Payday for Biglari

[Greg]

  Very roughly the book value of BH's  restaurant business is about $300 million.

  If BH receives and accepts an unsolicited offer for $500 million for the restaurant business, would Biglari get almost $50 million (after his 5% hurdle) just because BH had assets worth more than book value?

  Would this be fair to the current BH owners?

 

 

[Parsad]

Hi Greg,

 

In regards to your question, hypothetically it would work like this:

 

$300M - current book value

$500M - buyout price

$200M - increase in book value

 

5% hurdle multiplied by $300M = $15M

 

So, in theory, you would have $200M - $15M = $185M multiplied by 25% =

$46.25M in compensation.

 

Now that would only occur if the $500M buyout was cash, not shares.  If it was shares, then it would be based on the change in book value per share from the buy-out.  If the book value per share of the acquirer is significantly less than BH, then Sardar would get nothing.  But if the book value per share is higher, he would get a portion of that increase in book value.

 

At least that's how I figure it!  Input from others?  Cheers!

 

[Greg]

Parsad,

 

  What I had in mind when I posted my message was that BH could sell the only restaurant business for stock of the acquirer.

  That way Biglari gets both his big payday and keeps control of BH.

 

 

[Parsad]

Yes, I believe theoretically that could happen.  Sell SNS for $500M of stock, and now the stock is valued at fair value in Biglari Holdings and boosts book value per share.  In effect, he trades SNS for the acquirers stock and gets a big fat payday.  Not sure about the fine details in their compensation proposal and how this would work with "adjustments", but basically I think it could occur.  I think a CEO could manipulate this type of proposed structure, as much as a CEO could manipulate one based on profits, revenues, or any other single metric.  Cheers!