BH - Biglari Holdings

[rkbabang]

No surprise there once iss said this is how you should vote.

 

One more thought on this. Voting based upon the recommendation of ISS is completely asinine (my new favorite word). How many times do investors need to be taught how important it is to be independent?? Do your own research and come to your own conclusions. This is the exact same principle that was violated when people thought they could rely on the rating agencies' opinions. We know how that ended and we know how this is going to end- with more idiotic capital allocation. Principles are important, follow em!

 

If you look at the prospectus of your average mutual fund you'll see that they hold hundreds of stocks.  You can't really know that much about each one of them.  And even if you could it would be irrational to do so. Your time isn't well spent doing a lot of research on a company that is less than half of 1% of your fund.  Thus they outsource this kind of thing to an advisory firm to save time and save themselves the responsibility of making the decision, and you have the situation as it currently is.

[APG12]

If you look at the prospectus of your average mutual fund you'll see that they hold hundreds of stocks.  You can't really know that much about each one of them.  And even if you could it would be irrational to do so. Your time isn't well spent doing a lot of research on a company that is less than half of 1% of your fund.  Thus they outsource this kind of thing to an advisory firm to save time and save themselves the responsibility of making the decision, and you have the situation as it currently is.

 

Oh certainly. Your point is well taken. The same thing was said in defense of ratings agencies and I definitely see the logic of it. But at what point do you take responsibility for what you've invested your shareholder's money in? Again, I don't think the problem is the fault of ISS but rather fund managers who think it's OK to own 100 stocks that they don't have the time to follow.

[rkbabang]

If you look at the prospectus of your average mutual fund you'll see that they hold hundreds of stocks.  You can't really know that much about each one of them.  And even if you could it would be irrational to do so. Your time isn't well spent doing a lot of research on a company that is less than half of 1% of your fund.  Thus they outsource this kind of thing to an advisory firm to save time and save themselves the responsibility of making the decision, and you have the situation as it currently is.

 

Oh certainly. Your point is well taken. The same thing was said in defense of ratings agencies and I definitely see the logic of it. But at what point do you take responsibility for what you've invested your shareholder's money in? Again, I don't think the problem is the fault of ISS but rather fund managers who think it's OK to own 100 stocks that they don't have the time to follow.

 

I agree with you. This is why I hate mutual funds.  I don't know what the solution is, or if there is one.

High tax rates coupled with tax exempt retirement funds which create intensives for employers to offer matching funds, along with a sustained inflation (never allowing deflation) which discourages savings in cash, all force a lot of people into stocks who wouldn't normally be.  These people put their money into mutual funds, which means there is a lot of money in these funds.  Which means these problems are not going away any time soon.

 

[wescobrk]

Looks like the Washington post company is taking a page from biglari.

They changed their name to Graham holdings.

[JSArbitrage]

Looks like the Washington post company is taking a page from biglari.

They changed their name to Graham holdings.

 

I believe they sold the newspaper assets to Bezos.  So it's really not WaPo anymore.  A name change was overdue.

[ragu]

It is silly to extrapolate what future returns will be if BH can't get board seats on future targets. Even more silly to use CBRL as an example of why BH won't be successful in the future when this has been such a great outcome for BH investors already without a seat on CBRL's board .

 

Sardar has told you what he expects the returns are likely to be from simply purchasing dollar bills for 50 cents (15% over 5 years compounded). He also says that a presence on the board with the ability to influence operational/capital decisions gets you to a potential 32% return over 5 years compounded.

 

In fact, what is truly silly is to dispute what is axiomatic: BH's future returns will be lower if Sardar is not able to get on the boards of underperforming companies and exert meaningful influence over capital allocation decisions than if he did.

 

And, you have Sardar's illustration for what the potential range of gains might be for each scenario.

 

CBRL was effectively SNS part deux.

 

Clueless capital allocation: Check

Underperformance relative to history: Check

Expansion at the cost of profitability: Check

Declining customer traffic: Check

Increased prices in response to declining traffic: Check

More decline in traffic as a result of increasing prices: Check

 

If there was one board that Sardar was supremely qualified to be on given the SNS history, it was CBRL.

 

As a BH shareholder, I am disappointed that empty rhetoric and fear mongering, not to mention a rising stock price, has stood between Sardar and CBRL's board. With the vote against a dividend, CBRL remains a risky position for BH, especially at current prices.

 

Best,

Ragu

 

 

 

[giofranchi]

With the vote against a dividend, CBRL remains a risky position for BH, especially at current prices.

 

I was wondering why Mr. Biglari doesn’t sell CBRL at this point. No board, no special dividend, same obtuse management, a stock that is not clearly undervalued anymore… what is he seeing now in CBRL?! Of course, if CBRL’s stock should decline in price, that would automatically make Mr. Biglari more persuasive with other shareholders… but that would also entail forfaiting important paper gains… I don’t know… I hope at least that he can unload the CBRL position, without forfaiting the majority of paper gains: given BH’s 20% stake in CBRL, it shouldn’t be easy to sell all those shares, without affecting negatively the stock price…

 

Gio

 

[gg]

At $100+/per share, I would imagine that Biglari no longer finds CBRL to be "cheap" today based on current earnings. However, relative to what he thinks the company would be worth if it had better management (leading to higher earnings), and relative to his other available investable options, I imagine Biglari thinks that CBRL still presents a reasonable risk/reward.

 

In addition, CBRL management wants Biglari to exit the investment. While selling all those shares on the open market, if done quickly, would likely negatively affect the stock, CBRL management has already indicated its willingness to repurchase the shares directly in a private transaction. It's actually almost as if Biglari has a put option on the CBRL shares...

[giofranchi]

In addition, CBRL management wants Biglari to exit the investment. While selling all those shares on the open market, if done quickly, would likely negatively affect the stock, CBRL management has already indicated its willingness to repurchase the shares directly in a private transaction. It's actually almost as if Biglari has a put option on the CBRL shares...

 

Yes! This is true. :)

Thank you,

 

Gio

[rkbabang]

At $100+/per share, I would imagine that Biglari no longer finds CBRL to be "cheap" today based on current earnings. However, relative to what he thinks the company would be worth if it had better management (leading to higher earnings), and relative to his other available investable options, I imagine Biglari thinks that CBRL still presents a reasonable risk/reward.

 

In addition, CBRL management wants Biglari to exit the investment. While selling all those shares on the open market, if done quickly, would likely negatively affect the stock, CBRL management has already indicated its willingness to repurchase the shares directly in a private transaction. It's actually almost as if Biglari has a put option on the CBRL shares...

 

If he exercises that "option" though, the next company he goes after will spin it as "he held CBRL management hostage and they had to pay him off".  It is his best way out now, but it isn't a good P/R move.

[giofranchi]

It is his best way out now, but it isn't a good P/R move.

 

Yes! This ALSO is true. ;D

Thank you,

 

Gio

[wescobrk]

His shareholder letter comes out on sat.

I wonder how long it'll be until he offers buyout for insurance company.

He has about 120 million in cash at Bh.

So far he hasn't bought any company where he isn't the CEO.

[ragu]

I was wondering why Mr. Biglari doesn’t sell CBRL at this point.

 

gio,

 

I expect that he doesn't want to be seen as going away having "failed". 

 

He was desperate for the dividend, even going so far as to quote an "analyst" in support in the presentation (page eight).

 

I suspect Sardar must've been dragged out of the room kicking and screaming at the inclusion of this (same page):

 

“We think a special dividend would likely be supportive of CBRL shares near-term…”

 

 

Ugh, especially for someone who is as wedded to long-term value as Sardar is.

 

Best,

Ragu

 

[bookie71]

It is nothing but old fashioned "green mail" from the 80's.

[giofranchi]

It is nothing but old fashioned "green mail" from the 80's.

 

Could you explain what you mean by “green mail”? During the 80’s I still was in elementary school!! ;D ;D ;D

 

Gio

[Kraven]

It is nothing but old fashioned "green mail" from the 80's.

 

Could you explain what you mean by “green mail”? During the 80’s I still was in elementary school!! ;D ;D ;D

 

Gio

 

Gio, "green mail" was primarily an 80s phenomenom.  Raiders like Icahn, etc would buy up a big slug of stock, not unlike they do today, but at the time entrenched management would panic and in order to save their jobs they would buy back the stock.  Of course the raider didn't just want what the current market price was, they could get that more or less by just dumping the stock.  So to get rid of them they would be paid a premium.  It was called green mail because it was essentially blackmail, just given a cutesy Wall Street name.  They would buy the stock, make a lot of noise, but really have no intention of actually following through on any of it, they just wanted a big payday. 

[giofranchi]

They would buy the stock, make a lot of noise, but really have no intention of actually following through on any of it, they just wanted a big payday.

 

Ok, thank you, Kraven!

Then, I sincerely don’t understand how “green mail” could be compared to what Mr. Biglari has already done for BH’s investment in CBRL… ???

 

Gio

 

[Kraven]

They would buy the stock, make a lot of noise, but really have no intention of actually following through on any of it, they just wanted a big payday.

 

Ok, thank you, Kraven!

Then, I sincerely don’t understand how “green mail” could be compared to what Mr. Biglari has already done for BH’s investment in CBRL… ???

 

Gio

 

Sure.  Sorry, I can't answer that.  I am not familiar enough with the situation.

[rayfinkle]

I was wondering why Mr. Biglari doesn’t sell CBRL at this point.

 

gio,

 

I expect that he doesn't want to be seen as going away having "failed". 

 

He was desperate for the dividend, even going so far as to quote an "analyst" in support in the presentation (page eight).

 

I suspect Sardar must've been dragged out of the room kicking and screaming at the inclusion of this (same page):

 

“We think a special dividend would likely be supportive of CBRL shares near-term…”

 

 

Ugh, especially for someone who is as wedded to long-term value as Sardar is.

 

Best,

Ragu

 

For what it's worth, I attended the annual meeting (been a shareholder since early SNS days), and Biglari said a few interesting things relevant to this conversation:

1) To paraphrase, he would not sell CBRL because it would hurt his credibility in future investments. He wants to make money, and he thinks a controlling stake allows him to do this better than investing and being bought out.

2) He said he'd be "very surprised" if BH did not buy an insurance company by EOY 2013. Clearly the clock is ticking and this seems unlikely. However he was adamant that this is core to his strategy.

 

If there's interest I can dig up my notes and post the whole thing.

[wescobrk]

"For what it's worth, I attended the annual meeting (been a shareholder since early SNS days), and Biglari said a few interesting things relevant to this conversation:

1) To paraphrase, he would not sell CBRL because it would hurt his credibility in future investments. He wants to make money, and he thinks a controlling stake allows him to do this better than investing and being bought out.

2) He said he'd be "very surprised" if BH did not buy an insurance company by EOY 2013. Clearly the clock is ticking and this seems unlikely. However he was adamant that this is core to his strategy.

 

If there's interest I can dig up my notes and post the whole thing."

 

Thanks for posting!

I intended to go to the meeting but had to go to a funeral unexpectedly.

I bought quite a bit of unam thinking there would be a buyout this month but so far I've been dead wrong.

[giofranchi]

If there's interest I can dig up my notes and post the whole thing.

 

Please, do it! That would be very kind of you! ;)

 

And welcome to the board!! :)

 

Gio

[wescobrk]

Bh letter is now posted on the website (biglariholdings.com)

He didn't mention acquisitions at all. Mostly talked about franchising for sns.

Someone must have said something to him about his letter last year with so many i's in it.

This letter only has we, no I.

Nothing about insurance companies or plans for cash.

[maxprogram]

Wow, it's a good thing they've got an office in Monaco now. Otherwise the international expansion might be doomed to fail.

[Parsad]

Wow, it's a good thing they've got an office in Monaco now. Otherwise the international expansion might be doomed to fail.

 

My father's cousin lives in Monaco...not a cheap place to live or keep an office...incredibly limited supply.  Her husband owns a firm that designs and builds luxury yachts, sailboats, etc.  For him, setting up his business made logical sense, since so many luxury yachts are registered and docked there.  But it's hard for me to see how Monaco could be the most cost-efficient place to set up an international expansion office.  Ireland, from almost every aspect, would have been far better and cheaper.  Cheers!

[skanjete]

Wow, it's a good thing they've got an office in Monaco now. Otherwise the international expansion might be doomed to fail.

 

My father's cousin lives in Monaco...not a cheap place to live or keep an office...incredibly limited supply.  Her husband owns a firm that designs and builds luxury yachts, sailboats, etc.  For him, setting up his business made logical sense, since so many luxury yachts are registered and docked there.  But it's hard for me to see how Monaco could be the most cost-efficient place to set up an international expansion office.  Ireland, from almost every aspect, would have been far better and cheaper.  Cheers!

 

Monaco isn't cost efficient, but very tax-efficient, especially for rich individuals (for corporations I'm not so sure...).