Independent Board Members in Order For Biglari Holdings

[Parsad]

I think it's about time there were some independent board members added to Biglari Holdings.  Independent board members who own shares in the company.  I think this board is becoming very complacent and allowing the CEO to do whatever he wants. 

 

You see one press release for Fremont, then another press release on compensation.  One press release on CCA Industries, and then one on the reverse split.  It's like one for you and one for me...one for you and one for me!  Confuse and obfuscate!  Oh, he's going after another company...oh no, he's actually strengthening his control.  Oh, another company he's going after...oh, actually nope another control clause.

 

Perhaps, it's time for a large shareholder to run a proxy fight and get on the board.  Has anyone else here heard that BH now has access to a G5?  Is this true?  Maybe time for shareholders to ask some hard questions of the management and board at the next AGM.  Cheers! 

 

 

[ragnarisapirate]

Access to a G5? What are you talking about, Sanjeev?

[treasurehunt]

Access to a G5? What are you talking about, Sanjeev?

 

A Gulfstream V business jet, perhaps?

 

Or it could be a Pontiac G5, but that doesn't seem very egregious. :-)

[Parsad]

Does Steak'n Shake now have a corporate jet, or do they lease/charter a corporate jet?  That's what I heard...a Vegas trip for friends.  Not sure if they did it while including a visit to the new store, but I've heard that there was a trip made in a corporate jet to Vegas recently with friends.  Cheers!

[Parsad]

I hope it was the Pontiac!  Cheers!

[ragnarisapirate]

Well, if the rumor is true, then, good for Sardar and friends.

 

If it isn't, then, good for shareholders.

 

It almost seems like Biglari is going to end up ruling the world, or have a massive implosion, with there being little room for any other option. Either will be a site to see. I can't wait to see what happens.

[Parsad]

I don't see him having a massive implosion.  But I do see him getting control of BH over time, with little oversight by the board into the initiatives that will be implemented.  Cheers!

[Josh4580]

I could have sworn I saw Biglari in that new music video "Like a G6".  A G5 would be underneath such a money compounder as Biglari. 

 

http://new.music.yahoo.com/Far-East-Movement/videos/view/Like-a-G6--218679858

[maxprogram]

Thought everyone may be interested in this recent article on Steak n Shake. (it is under a paywall on IBJ so I will just include some relevant selections.) As you can see I have a vested interest in posting it, but it provides some more color of Biglari's relationship with franchisees and his management of the company.

 

New rules rile Steak n Shake franchisees

Cory Schouten

February 5, 2011

 

Franchise owners of Steak n Shake restaurants are revolting against parent company Biglari Holdings Inc. just as the chain plans a nationwide expansion fueled by franchising.

 

Entrepreneurs representing 55 of the chain’s 70 franchised locations have teamed up to challenge a move by the company to impose standardized menus and pricing.

 

For more than 70 years, Steak n Shake franchise offering documents allowed customization to address varying real estate, product and labor costs and regional customer tastes. But the chain changed course late in 2010, notifying franchisees of a new policy requiring uniform menus, pricing and promotions.

 

The company sent default notices to several restaurant owners—including the chain’s original franchisee, Stuller Inc. of Illinois, which opened its first Steak n Shake restaurant in 1939 and now owns five locations.

 

Stuller responded with a federal lawsuit in Illinois that claims the chain is trying to boost its overall sales at the expense of franchisees’ profit margins. Steak n Shake earns royalties from franchisees based on overall sales, not on the profitability of those sales. Stuller says in court filings that implementing the uniform pricing year-round would hit its bottom line by $913,000.

 

. . .

 

“I don’t understand how a business that wants to grow through franchising could have such an adversarial relationship with its franchisees,” said Mark Gratkowski, a former director of operations for Steak n Shake who owns three stores in Alabama and Florida. “If we work together, we could fix all of this.”

 

Franchising focus

 

Biglari Holdings CEO Sardar Biglari did not respond to interview requests by phone or e-mail. But his 2010 letter to shareholders suggests he understands the importance of franchising.

 

“Steak n Shake’s future lies in franchising,” wrote Biglari, 33. “It is a fiery growth engine, the kind of business we like to own: one that does not require enormous sums of cash to generate annuity-like cash flow.”

 

The Steak n Shake brand has the potential for 1,000 stores but it won’t happen without good relationships between franchisees and the corporate office, said Max Olson, a Salt Lake City money manager who follows the company but does not currently own shares.

 

The bottom line, Olson says, is both sides have to win.

 

“For franchised restaurants, it’s a balancing act between both uniformity and fostering an entrepreneurial culture,” Olson wrote in an e-mail. “One of the things that made chains like McDonald’s so successful in the past was their willingness to let franchisees experiment with new menu offerings and more efficient procedures. Ray Kroc was very good at striking this balance.”

 

Eager for innovation

 

Franchisees have embraced promotions such as 4 meals under $4 and a half-price happy hour for milkshakes, said Gary Reinwald Sr., a former Steak n Shake executive who owns two locations in Knoxville, Tenn., and is president of the newly formed One Voice Franchise Association.

 

The promotions helped the chain boost a years-long streak of declining same-store sales and post a profit of $28 million in 2010, more than triple that of 2009.

 

But Steak n Shake—apparently buoyed by its successes—last year unleashed a slew of new promotions and menu offerings that complicated the operation of the restaurants without adding to the bottom line, Reinwald says.

 

Reinwald hasn’t sold a single Carolina Slaw Dog in either of his restaurants, and the Wisconsin Buttery Burgers aren’t doing much better. Year-round coupons mean fewer customers are paying full price for anything. And the mandate that he sell a sweet tea for 99 cents just makes no sense in a state where all tea is sweet and customers don’t scoff at paying a bit more for such a refreshing beverage.

 

. . .

 

“Now, a franchisee can open an efficient, beautiful unit for about $1.5 million,” Biglari wrote in his 2010 letter. “My projection is that revenues emanating from each unit will doubtless surpass the $1.5 million mark, which combined with our current operating margin would yield an attractive return on investment for the franchisee.”

 

At least one franchisee is unimpressed. The new restaurant design is an inefficient and breakdown-prone mess, said Doug Knipp, who opened one three months ago in Pikeville, Ky.—against his better judgment—after the chain refused to let him build the tried-and-true format.

 

The fryer has broken down twice. The doors fell off the freezer. The flooring already needs to be replaced, and the cheap dining-room furniture won’t be far behind, he said. And it’s not a contractor issue: Steak n Shake cut too many corners on materials.

 

“We got a cheaper product to get the price down, but along the way it ended up not being cheaper when you add in all the costs of having to repair it,” said Knipp, who also owns 17 Kentucky Fried Chicken restaurants in Ohio, Kentucky and West Virginia. “They should have built the first one themselves.”

 

. . .

 

“I love my brand. I love our heritage. I love the idea of taking Steak n Shake national,” Knipp said. “We’ve got the brand to do it. The main concern we have is there’s no ‘we’. It’s being run like a dictatorship.”

 

Relationship sours

 

Relations with the home office soured after Biglari took over in 2008 and began treating franchisees like employees, not partners, Gratkowski said.

 

Gratkowski was Steak n Shake’s director of operations before he left the then-Indianapolis-based company in 2006, and became a Steak n Shake franchisee in 2007. He spent $4.5 million to acquire land and build three restaurants, in Mobile, Ala. and Pensacola, Fla.

 

“He has no self-control, and will go ballistic if you push the wrong button,” Gratkowski said of Biglari. “If you don’t do it his way, you’re fired. He really doesn’t care about Steak n Shake any more than it produces cash float for him to invest.”

 

. . .

 

Gratkowski can’t understand why Biglari—if he sees franchisees as so important to Steak n Shake’s future—won’t even find time to engage in a dialogue.

 

“The growth potential through franchising is still unlimited for Steak n Shake,” he said. “We could help if he wasn’t such a jerk.”•

[Partner24]

The fryer has broken down twice. The doors fell off the freezer. The flooring already needs to be replaced, and the cheap dining-room furniture won’t be far behind, he said. And it’s not a contractor issue: Steak n Shake cut too many corners on materials.

 

Demons on cost? Yeah, what about having a CEO compensation package that would only allow him to buy these kinds of materials for himself? I hope that G5 for Las Vegas trip allegation is not true, because if I was a franchisee, get cheap material like that and I would get to know that, that would be icing on cake...

 

Good Lord I hope he will not buy a plane for himself like he buys freezers for his franchisee!

[Parsad]

If the shareholders don't kick Biglari out, he will end up completely controlling BH and SNS.

 

Would be very, very difficult unless you get Gabelli on your side.  I think you could get enough votes if a legitimate large shareholder ran a proxy fight against him before he increases his ownership.  But that window is closing quickly as he adds more shares and voting classes.  It's already too late for this year's AGM, so that gives him a year to increase his ownership or do something to make shareholders forget. 

 

Although, shareholders and franchisees attending could certainly make it an interesting meeting by asking hard questions.  I feel sorry for the franchisees...in one way he saved their bacon by turning the company around, and then now he's running it like a dictatorship and alienating many of them.  Maybe the way to the CEO is to ask the directors the hard questions and ask them to be accountable.  It might force them to pressure Sardar to reflect on many of his decisions.  Cheers! 

[farnamstreet]

Brings to mind this article once more http://bit.ly/efOFT9

 

"Next time you go to an AGM, if you think there is cause for concern, ask the CEO during the Q&A if management could leave the room for 15 minutes because you have a few questions to ask the independent directors concerning executive compensation, and point out that it would not be appropriate for management to be present for such a discussion. Don’t be afraid. The meeting is for you, the shareholder. If the CEO gets defensive, that might be taken as a bad sign. If the independent directors get defensive, that could be taken as a really bad sign, because it would suggest that, in their hearts, they don’t represent shareholders at all."

 

 

[momentumgeek]

I like that idea on shareholder meetings! I totally agree here, everything I've read about him over the last few years leads me to believe he's an absolute charlatan passing himself off as a value investor while in the longer run his super aggressive personality will (like someone said in the past) result in massive short term success or destruction of the business. Buffett never reverse split the stock to get it to $100k. That, the maserati, the g5 (if it's true) are totally ridiculous. He should be running an SAC model rather than a value model! I'm sure he'd be a massive consumer of sharks in formaldehyde too!

 

I think this generally speaks to a lot of the 'value managers' who talk the talk but at the end of the day, got into the business because of the money and want to make it overnight rather than slowly compound capital by protecting downside.

[ragnarisapirate]

Brings to mind this article once more http://bit.ly/efOFT9

 

"Next time you go to an AGM, if you think there is cause for concern, ask the CEO during the Q&A if management could leave the room for 15 minutes because you have a few questions to ask the independent directors concerning executive compensation, and point out that it would not be appropriate for management to be present for such a discussion. Don’t be afraid. The meeting is for you, the shareholder. If the CEO gets defensive, that might be taken as a bad sign. If the independent directors get defensive, that could be taken as a really bad sign, because it would suggest that, in their hearts, they don’t represent shareholders at all."

 

 

 

Anyone gonna go to the meeting and ask the question?

[Parsad]

The irony in the whole story is that Biglari ousted Friendly CEO for misappropriating shareholder money for airplanes, vacations and such. Now he is doing the same. The difference is that he is doing it with shareholder approval.

 

This is not fact, but stuff that is being said at the moment.  Shareholders at the AGM may want to ask about the validity of such comments, or if the company is actually leasing/renting corporate jets and who is flying on the company tab.  Cheers!