BH - Biglari Holdings

[merkhet]

If he took control of subsidiaries that deliver free cash flow of $100 million a year, then he has done nothing special.

 

I don’t think this is truly relevant. When I speak of “business acumen”, I mean both on the operations and in finance / investing. They both are important and complement themselves in the process of building wealth. I myself, just like Mr. Biglari, though on a much smaller scale, focus everyday both on improving the quality of operations and on effective capital allocation decisions.

 

When Mr. Biglari bought SNS for a pittance, it certainly wasn’t the cash machine it is today. In fact, as he pointed out in line number 1 of the 2013AL, it was a “money losing restaurant chain”. What truly matters is the cost he paid to take control over SNS operations, and his ability to turn that business from an unprofitable one into a cash cow.

 

Anyone can have his/her opinions on Mr. Biglari’s character features and ethics, but no serious entrepreneur should underestimate or fail to recognize the business achievements he has accomplished from late 2008 until today. :)

 

Gio

 

You've missed my point.

 

You highlighted that cash went from $1 million to $600 million.  And then you said that it was nothing short of amazing.  Without additional context, that's a pointless number.  There needs to be a "why" did cash go from point A to point B.  Therefore, the cash flow properties of his subsidiaries is incredibly relevant.

 

For instance, if cash went from $1 million to $600 million, but the underlying subsidiaries generate $3 billion of FCF a year and there's no concomitant buildup of equity value, then he has been wasting a lot of money.

 

Does that make sense? 

 

I have no opinion on whether Biglari is a good capital allocator or a good businessman.  However, the evidence that you trotted out to assert that he is a good businessman is lacking.  If you had brought out information about operating margins, incremental return on invested capital, etc.  then it would have been a different story.

[giofranchi]

You've missed my point.

 

You highlighted that cash went from $1 million to $600 million.  And then you said that it was nothing short of amazing.  Without additional context, that's a pointless number.  There needs to be a "why" did cash go from point A to point B.  Therefore, the cash flow properties of his subsidiaries is incredibly relevant.

 

For instance, if cash went from $1 million to $600 million, but the underlying subsidiaries generate $3 billion of FCF a year and there's no concomitant buildup of equity value, then he has been wasting a lot of money.

 

Does that make sense? 

 

I have no opinion on whether Biglari is a good capital allocator or a good businessman.  However, the evidence that you trotted out to assert that he is a good businessman is lacking.  If you had brought out information about operating margins, incremental return on invested capital, etc.  then it would have been a different story.

 

I think I have understood your point well... And, if you wish to know, the buildup of capital was due for $269.0 million to Investment Gains and for $194.3 million to Operating Businesses.

Yet, both results were achieved thanks to Mr. Biglari’s “business acumen”: the reason Investment Gains were obtained thanks to his business acumen is obvious enough; and the reason also Operating Businesses gains were obtained thanks to his business acumen is that, when he took control of SNS, his operating business was just a “money losing restaurant chain”.

I still think the first 7 lines of his 2013AL are clear enough. ;)

 

Gio

 

[gg]

 

 

Im no expert on Biglari Holdings so I apologise if im not making much sense. I looked into it a few years back and decided it wasn't my cup of tea.  You mention the business achievements from 2008 (The depths of the financial crisis) until today (all time market highs).  I did a quick check on Yahoo of BH vs Competitors.

                                      2009      2014

BH (Biglari Holdings)        $101      $480  =  480% increase

DIN (DineEquity)              $8.7      $83    =  950% Increase

DENN (Dennys)                $1.68    $6.93  =  412% Increase

RRGB (Red Robin)              $12.65  $67    =  529% Increase

RT (Ruby Tuesdays)            $1.2      $5.92  =  493% increase

 

Stockprice of BH seems to have underperformed most of its competitors over the last 5 years. So how much of the improvement of the business is due to improvement in the industry ?

 

No idea if it would  make BH look better or worse, but you can't simply compare the stock price in 2009 versus 2014 for each of these companies. You also would need to take into account if there are more/less shares now vs 2009 and if there is more/less debt since then too

[wescobrk]

Gio,

Do you think it's odd he still hasn't sold a share 3 weeks after his intention to do so?

I thought we would have seen a press release with an investment bank he sold his entire stake like ackman did with jcp.

But so far he continues to hold and cbrl continues to slowly decline.

[Rabbitisrich]

If he took control of subsidiaries that deliver free cash flow of $100 million a year, then he has done nothing special.

 

I don’t think this is truly relevant. When I speak of “business acumen”, I mean both on the operations and in finance / investing. They both are important and complement themselves in the process of building wealth. I myself, just like Mr. Biglari, though on a much smaller scale, focus everyday both on improving the quality of operations and on effective capital allocation decisions.

 

When Mr. Biglari bought SNS for a pittance, it certainly wasn’t the cash machine it is today. In fact, as he pointed out in line number 1 of the 2013AL, it was a “money losing restaurant chain”. What truly matters is the cost he paid to take control over SNS operations, and his ability to turn that business from an unprofitable one into a cash cow.

 

Anyone can have his/her opinions on Mr. Biglari’s character features and ethics, but no serious entrepreneur should underestimate or fail to recognize the business achievements he has accomplished from late 2008 until today. :)

 

Gio

 

Im no expert on Biglari Holdings so I apologise if im not making much sense. I looked into it a few years back and decided it wasn't my cup of tea.  You mention the business achievements from 2008 (The depths of the financial crisis) until today (all time market highs).  I did a quick check on Yahoo of BH vs Competitors.

                                      2009      2014

BH (Biglari Holdings)        $101      $480  =  480% increase

DIN (DineEquity)              $8.7      $83    =  950% Increase

DENN (Dennys)                $1.68    $6.93  =  412% Increase

RRGB (Red Robin)              $12.65  $67    =  529% Increase

RT (Ruby Tuesdays)            $1.2      $5.92  =  493% increase

 

Stockprice of BH seems to have underperformed most of its competitors over the last 5 years. So how much of the improvement of the business is due to improvement in the industry ?

 

DIN was in a pickle after the purchase of Applebee's in 2007.

[OracleofCarolina]

http://www.sec.gov/Archives/edgar/data/1067294/000092189514000056/prec14c07428021_01162014.htm

 

Mr. Bigs calls for a special meeting, wonder who he would partner with if he submitted a bid for the whole company??

[dcollon]

Cracker Barrel Issues Statement on Call for Special Meeting

Tuesday, January 21, 2014

 

 

Cracker Barrel Old Country Store, Inc. (“Cracker Barrel” or the “Company”) (Nasdaq:CBRL) today issued the following statement in response to the filing by Sardar Biglari, Biglari Capital Corp. and affiliates seeking to call a special meeting of the Company's shareholders:

 

Sardar Biglari has run proxy contests to elect himself to Cracker Barrel’s Board of Directors at each of the Company's last three annual meetings. He lost all three, by wide and increasing margins. Shortly before the last annual meeting, Mr. Biglari, having missed the Company's deadline for submitting shareholder proposals, threatened to call a special meeting of shareholders right after the annual meeting to vote on a proposal calling on the Company to pay a $20 per share special dividend. To avoid the cost and distraction of a special meeting right after the annual meeting, the Company voluntarily put Mr. Biglari's proposal on the annual meeting ballot. The proposal also lost by a wide margin.

 

Apparently not satisfied with these losses, a month after the annual meeting Mr. Biglari announced his intent to call a special meeting to vote on yet another proposal, this time calling on the Company to “pursue all potential extraordinary transactions, including the sale of the Company.” This special meeting would impose the same kind of cost and distraction that the Company sought to avoid when it voluntarily put Mr. Biglari's special dividend proposal on the annual meeting ballot. It is hard to avoid the conclusion that Mr. Biglari is now just engaged in harassment of the Company.

 

The Company recognizes that Mr. Biglari will likely be able to meet the 20% threshold required to call a special meeting as a result of the fact that he controls the vote of 19.9% of the Company's common stock. Accordingly, Cracker Barrel’s Board has determined to call a special meeting voluntarily to avoid the added cost and distraction of Mr. Biglari's solicitation of the Company’s shareholders for the call of a special meeting. The special meeting will be held on April 23, 2014.

 

[Spekulatius]

http://www.sec.gov/Archives/edgar/data/1067294/000092189514000056/prec14c07428021_01162014.htm

 

Mr. Bigs calls for a special meeting, wonder who he would partner with if he submitted a bid for the whole company??

 

CBRL should do a Pac Man defense and submit a bid for BH. They could do stock exchange offer at a decent premium wish a cash component, and still come out ahead. This would unlock more value than Mr. Big pressing for a special dividend at CBRL, imo.

[MCN]

Apologies if this has already been discussed on the board but i was wondering what people think about the name licensing deal that Biglari has. At first glance it smacks of greed and a way to hook himself into place but is it perhaps simply to ensure that the company does not continue to use his name if he gets booted out?

 

Any thoughts?

 

[giofranchi]

Gio,

Do you think it's odd he still hasn't sold a share 3 weeks after his intention to do so?

I thought we would have seen a press release with an investment bank he sold his entire stake like ackman did with jcp.

But so far he continues to hold and cbrl continues to slowly decline.

 

wescobrk,

sorry I had missed your post until now… Anyway, I cannot really answer to your question… Let’s only say that I am content to let him work. :)

 

Gio

 

[wescobrk]

No problem.

I saw the special meeting filing and Cbrl response for April 23rd.

Maybe sardar will end up buying it at some point.

[Kuhndan]

BH 10k came out on Friday. Biglari was paid $14.7 million plus $830,000 for "shared services" by BH for his work at  Biglari Capital in 2013. He also will get his salary at BH plus incentive. Previously his compensation was capped at $10 million, I forget how much  Biglari paid for  Biglari Capital but it looks like he got a pretty good deal.

[Parsad]

BH 10k came out on Friday. Biglari was paid $14.7 million plus $830,000 for "shared services" by BH for his work at  Biglari Capital in 2013. He also will get his salary at BH plus incentive. Previously his compensation was capped at $10 million, I forget how much  Biglari paid for  Biglari Capital but it looks like he got a pretty good deal.

 

Well, he said he would get around the cap and he did get around the cap...shareholder vote be damned!  Sad example of corporate governance!  Cheers!

[OracleofCarolina]

Yep, it was a good year for Biglari, from the 10-K.

 

"As the general partner of the investment partnerships, Biglari Capital on December 31 of each year will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6%.  Our policy is to accrue an estimated incentive fee throughout the fiscal year.  The total incentive reallocation from Biglari Holdings to Biglari Capital for calendar year 2013 was $14,702, including $3,655 associated with gains on the Company’s common stock, which is eliminated in our financial statements"

 

[shalab]

Yep, it was a good year for Biglari, from the 10-K.

 

"As the general partner of the investment partnerships, Biglari Capital on December 31 of each year will earn an incentive reallocation fee for the Company’s investments equal to 25% of the net profits above an annual hurdle rate of 6%.  Our policy is to accrue an estimated incentive fee throughout the fiscal year.  The total incentive reallocation from Biglari Holdings to Biglari Capital for calendar year 2013 was $14,702, including $3,655 associated with gains on the Company’s common stock, which is eliminated in our financial statements"

 

 

...

 

BH 10k came out on Friday. Biglari was paid $14.7 million plus $830,000 for "shared services" by BH for his work at  Biglari Capital in 2013. He also will get his salary at BH plus incentive. Previously his compensation was capped at $10 million, I forget how much  Biglari paid for  Biglari Capital but it looks like he got a pretty good deal.

 

Well, he said he would get around the cap and he did get around the cap...shareholder vote be damned!  Sad example of corporate governance!  Cheers!

 

Looks like he had $25 M this year - not bad. He is on his way to becoming a billionaire.

 

It looks like the incentive was calculated without taking into account capital gain liabilities if one were to sell CBRL. This BH case should continue to be interesting this year.

[OracleofCarolina]

I just noticed this in the 10-K(a), I did not realize Duane had left, was this announced before?

 

Duane Geiger, 51, served as Interim Chief Financial Officer of Biglari Holdings from April 2010 to September 2013 and of the Predecessor from July 2008 to April 2010.  Mr. Geiger has also served as Vice President since 2004, Controller from 2004 until January 2012 and in various other positions with the Company and the Predecessor since 1993.

 

[ragu]

Do you think it's odd he still hasn't sold a share 3 weeks after his intention to do so?

 

wescobrk,

 

AFAIK, he has never said he'd sell his stake (aside from tendering in the event of a repurchase). Prior to the CBRL annual meeting, he simply wrote that his pledge to provide a two-week notice to other shareholders before he sold his stake would no longer hold if Cooley and himself were not elected to the board this time.

 

I thought we would have seen a press release with an investment bank he sold his entire stake like ackman did with jcp.

 

I'd be amazed if he sold his stake in that manner. It would absolutely hurt his credibility in future activist situations and I don't think it's in his nature to take an "out" that isn't offered to all shareholders.

 

Best,

Ragu

[wescobrk]

"I'd be amazed if he sold his stake in that manner. It would absolutely hurt his credibility in future activist situations and I don't think it's in his nature to take an "out" that isn't offered to all shareholders"

 

Fair enough. Especially now that the stock dropped from 117 to 99.

He is only about 2 years away from getting around the 5 year TN statute from being able to buy more or the whole company.

If he fails at the special meeting (I'm sure he will based on the votes from the past 3 years) then in 2 years he will have more options on the buy side.

[rayfinkle]

"I'd be amazed if he sold his stake in that manner. It would absolutely hurt his credibility in future activist situations and I don't think it's in his nature to take an "out" that isn't offered to all shareholders"

 

Fair enough. Especially now that the stock dropped from 117 to 99.

He is only about 2 years away from getting around the 5 year TN statute from being able to buy more or the whole company.

If he fails at the special meeting (I'm sure he will based on the votes from the past 3 years) then in 2 years he will have more options on the buy side.

 

Can you explain the TN statute? Thanks!

[peridotcapital]

"I'd be amazed if he sold his stake in that manner. It would absolutely hurt his credibility in future activist situations and I don't think it's in his nature to take an "out" that isn't offered to all shareholders"

 

Fair enough. Especially now that the stock dropped from 117 to 99.

He is only about 2 years away from getting around the 5 year TN statute from being able to buy more or the whole company.

If he fails at the special meeting (I'm sure he will based on the votes from the past 3 years) then in 2 years he will have more options on the buy side.

 

Can you explain the TN statute? Thanks!

 

After 5 years from the date Biglari acquired 10% of CBRL (January 2012), he can buy the company if he can get 2/3 of the remaining shares to vote for it. Inside of 5 years, no 10% owner can consummate any business combination with a TN corporation.

[rayfinkle]

Helpful...thanks!

[wescobrk]

"After 5 years from the date Biglari acquired 10% of CBRL (January 2012), he can buy the company if he can get 2/3 of the remaining shares to vote for it. Inside of 5 years, no 10% owner can consummate any business combination with a TN corporation."

 

Thanks for the  clarification I thought it was from June 2011 when he filed 13d.

[giofranchi]

I have just bought more BH. :)

 

Gio

[gg]

Gio - Curious if you've considered buying some CBRL instead of just increasing the BH position? I'm thinking that CBRL would probably move more if there's a positive development from the special shareholders meeting on April 23, and if it moves down, BH would likely fall too.

[giofranchi]

Gio - Curious if you've considered buying some CBRL instead of just increasing the BH position? I'm thinking that CBRL would probably move more if there's a positive development from the special shareholders meeting on April 23, and if it moves down, BH would likely fall too.

 

Your reasoning is correct. No doubt about that. But I have no interest in CBRL for the long term. And I buy only things that I want to hold for the long term. Instead, should BH share price keep falling, I will keep buying. :)

 

Gio