link01 Posted August 15, 2014 Share Posted August 15, 2014 I dont know if this issue was discussed already. With Biglari's name inextricably linked to all the company's brands, what will happen (if God forbid) his reputation is soiled? say he got caught up in some scandal, or his long lost cousin in Iran sets up a terrorist plot? The company may quickly distance itself from Biglari, but the brands cannot. Would anyone go to Subway by Bin Laden? this is a very good point. add that to the list of things that sb will need to think hard about if he wants to cement a legacy to go along with his compounding wealth hopes. the resulting taint will affect not only stock market investors but people who might buy his holding co's goods & services in the real world. Link to comment Share on other sites More sharing options...
adesigar Posted August 16, 2014 Share Posted August 16, 2014 My public company vehicle is around the corner Details ? Link to comment Share on other sites More sharing options...
kmukul Posted August 18, 2014 Share Posted August 18, 2014 Sanjeev, You probably do not want to talk about it too early, but when is you public vehicle coming - what structure is it going to be? Details will be in our 3rd Quarter Letter in October...public, listed company. Cheers! Wow thanks Prasad, I am happy to see this good for you and probably good for me as well as i found one more thing i can hold forever and may be it will be the mini berkshire that we are all looking for. Will it be same as Pabrai's company as you are pretty close to him? Also i wish that after you raise cash we get a nice correction which we have been waiting for so long. Link to comment Share on other sites More sharing options...
giofranchi Posted August 19, 2014 Share Posted August 19, 2014 If all rights are exercized, there will be 1.721.150 + 344.261 = 2.065.411 shares outstanding. At yesterday's closing price $385.75, it translates into a market cap of: 2.065.411 x $385.75 = $797 million. Equity will be: $618 million + $86 million = $704 million. BH is selling for 797 / 704 = 1.13 x BV. Gio Link to comment Share on other sites More sharing options...
LC Posted August 19, 2014 Share Posted August 19, 2014 I dont know if this issue was discussed already. With Biglari's name inextricably linked to all the company's brands, what will happen (if God forbid) his reputation is soiled? say he got caught up in some scandal, or his long lost cousin in Iran sets up a terrorist plot? The company may quickly distance itself from Biglari, but the brands cannot. Would anyone go to Subway by Bin Laden? Remember it works the other way too. What happens if his long lost cousin cures cancer and the world forever loves the name Biglari? Link to comment Share on other sites More sharing options...
writser Posted August 19, 2014 Share Posted August 19, 2014 The treatment would probably cost one kidney and 25% of your retirement savings if you live past an arbitrary hurdle rate ;) . Link to comment Share on other sites More sharing options...
ukvalueinvestment Posted August 19, 2014 Share Posted August 19, 2014 Seems reasonable, to cure cancer? Link to comment Share on other sites More sharing options...
link01 Posted August 19, 2014 Share Posted August 19, 2014 If all rights are exercized, there will be 1.721.150 + 344.261 = 2.065.411 shares outstanding. At yesterday's closing price $385.75, it translates into a market cap of: 2.065.411 x $385.75 = $797 million. Equity will be: $618 million + $86 million = $704 million. BH is selling for 797 / 704 = 1.13 x BV. Gio gio, I have book val per share at 295 after the rights. bh equity per latest 10Q was 553.467 mil. where do you get 618 mil? Link to comment Share on other sites More sharing options...
frugalchief Posted August 19, 2014 Share Posted August 19, 2014 gio, I have book val per share at 295 after the rights. bh equity per latest 10Q was 553.467 mil. where do you get 618 mil? I think it's including the "Treasury Stock" on BH's balance sheet that TLF holds for investment purposes. Correct me if I'm wrong... Link to comment Share on other sites More sharing options...
link01 Posted August 19, 2014 Share Posted August 19, 2014 If all rights are exercized, there will be 1.721.150 + 344.261 = 2.065.411 shares outstanding. At yesterday's closing price $385.75, it translates into a market cap of: 2.065.411 x $385.75 = $797 million. Equity will be: $618 million + $86 million = $704 million. BH is selling for 797 / 704 = 1.13 x BV. Gio gio, I have book val per share at 295 after the rights. bh equity per latest 10Q was 553.467 mil. where do you get 618 mil? well, that 295 per share I mentioned using gio's #'s except for equity would actually be 309.66 or 1.24x book val. but going to the Q3 10k it looks like there were 1.7425 mil shares outstanding (1.5884 diluted shares plus add back treasury shares owned by partnerships of 154.15k shares). 553,467 equity / 1.7425 = 318 book val per share pre shares issued for rights post rights equity will be 553.5 mil + 87.13 mil = 640.4 mil post rights shares outstanding would be 1.7425 mil +348.5 mil = 2.091mil 640.4 / 2.091 = 306.35 per share = 1.26 x book val at 385 bh closed at yesterday book val is gonna be volatile given its large investment in cbrl, of course. how cheap bh is determined to be will depend on your est of the value of cbrl & whether sb can wield any influence there. and THAT would have been a whole lot easier if he had more humility, but alas... :'( Link to comment Share on other sites More sharing options...
link01 Posted August 19, 2014 Share Posted August 19, 2014 gio, I have book val per share at 295 after the rights. bh equity per latest 10Q was 553.467 mil. where do you get 618 mil? I think it's including the "Treasury Stock" on BH's balance sheet that TLF holds for investment purposes. Correct me if I'm wrong... thanks, frugalchief. I posted just after you did. it looks like I overlooked the need to adjust up equity by the treasury shares owned by the partnerships... but not all treasury shares... which would yield the same thing as simply taking equity of 553,467 mil in the Q3 10Q / the 1.5884 mil diluted shares outstanding = 348 per share pre rights and 1.11 x book post rights book would be 332 per share = 1.16 x book Link to comment Share on other sites More sharing options...
frugalchief Posted August 19, 2014 Share Posted August 19, 2014 :) Also, just in... http://www.tennessean.com/story/money/2014/08/19/biglari-declines-fourth-bid-cracker-barrel-board/14298155/ Dangit! I was looking forward to reading all the hype about these fights. Sounds like SB is biding his time now to wait for that legislative bill (?) to expire. Or maybe since mgmt has taken some good steps in improvement he will sit back and enjoy. Link to comment Share on other sites More sharing options...
giofranchi Posted August 21, 2014 Share Posted August 21, 2014 These are the numbers that I see: Long term debt: $215 million Obligations under leases: $101 million Shareholders equity: $553 million The Company proportionate share of Company stock held by investment partnerships: $65 million Total equity: $533 + $65 = $618 million Cash and equivalents: $112 million Net debt: $215 + $101 - $112 = $201 million Net debt / Total equity = $201 / $618 = 32.5%. Furthermore, we have $707 million in Land, Buildings, and Equipment, less $355 million of accumulated depreciation on the balance sheet. We know land and buildings mostly don't depreciate, and equipment is barely 30% of those $707 million. Therefore, it is possible the line "Property and equipment, net" understates significantly the true worth of BH's real estate. If all rights are exercized, there will be 1.721.150 + 344.261 = 2.065.411 shares outstanding. At yesterday's closing price $385.75, it translates into a market cap of: 2.065.411 x $385.75 = $797 million. Equity will be: $618 million + $86 million = $704 million. BH is selling for 797 / 704 = 1.13 x BV. Today it is trading at $375: 1.1 x BV. Gio Link to comment Share on other sites More sharing options...
giofranchi Posted August 21, 2014 Share Posted August 21, 2014 I think the only adjustment that should be made is the following: On June 30 the stock closed at $423. Therefore, the number of shares belonging to BH and held by investment parnerships must be: $65 million / $423 = 153,664. Biglari, on behalf of BH, will buy 153,664 / 5 = 30,733 shares at $250, using a total of: $7.68 million. In the end BH will own 153,664 + 30,733 = 184,397 of its own shares, held by investment partnerships. Which at today's price will be worth: $372 x 184,397 = $68.6 million. In other words, they will be worth $3.6 million more than at the end of Q2 2014, but Biglari will have used $7.68 million. Therefore, from the $704 million of equity I have calculated we should subtract $7.68 - $3.6 = $4.08 million. Let's say equity after the rights are exercised will be circa $700 million. BH market cap at $372 per share will be 2.065.411 x $372 = $768.3 million, and it will be selling for 768.3 / 700 = 1.098 x BV. Gio Link to comment Share on other sites More sharing options...
giofranchi Posted August 22, 2014 Share Posted August 22, 2014 On the other hand, I think BH's real estate might be worth much more than what is stated on its Balance Sheet... Because of that, even considering deferred taxes, I believe BV might be close to my estimate... Gio Link to comment Share on other sites More sharing options...
frugalchief Posted August 22, 2014 Share Posted August 22, 2014 Gio, your calculation has engineer's precision, one has to back out deferred income taxes from investment gains to get at actual book. ( Munger formula for wesco book value ). I am thinking it will be in 50-60 million lower than what it is now. Shalab, aren't these already counted against BV since they are liabilities? YE 2012 --> YE 2013, deferred income taxes rose $75.8mm. But, can't we also look at deferred income taxes as an asset (float)?? Link to comment Share on other sites More sharing options...
accutronman Posted August 22, 2014 Author Share Posted August 22, 2014 Just too cheap today to pass up. Picked up more shares. The price has not been this low since August 1, 2013. Link to comment Share on other sites More sharing options...
giofranchi Posted August 22, 2014 Share Posted August 22, 2014 Just to cheap today to pass up. Picked up more shares. The price has not been this low since August 1, 2013. I have added too. At this price practically all future growth is for free. ;) Gio Link to comment Share on other sites More sharing options...
giofranchi Posted August 23, 2014 Share Posted August 23, 2014 Shalab, aren't these already counted against BV since they are liabilities? YE 2012 --> YE 2013, deferred income taxes rose $75.8mm. But, can't we also look at deferred income taxes as an asset (float)?? Very good point! Probably, BV is even higher than my estimate. ;) Gio Link to comment Share on other sites More sharing options...
merkhet Posted August 25, 2014 Share Posted August 25, 2014 http://finance.yahoo.com/news/biglari-holdings-responds-cracker-barrels-225800934.html You guys are going to love Biglari's response....ah man, this guy cracks me up! But he raises good points. I mean, owning over 17% of a company's stock is a pretty good reason to get a board seat.... Yes, I would have to agree. He does douchy things, but he's correct here. They should have corrected the credentials, and he should get a board seat. But the problem is...you give him one seat, and that's it...he's going to eventually whittle away the board and take over the company. It'll be called "Cracker Biglari" shortly thereafter. ;D Cheers! Biglari Barrel has a nicer ring to it. Link to comment Share on other sites More sharing options...
frugalchief Posted August 25, 2014 Share Posted August 25, 2014 Gio - gotta admit, I've watched this board as a guest since about page 40, and finally had to join in on the discussions....boy were they getting heated! :o I was reviewing some of the earlier pages to catch up on what everyone was saying (and I'm sure convictions haven't changed much...), but it interesting to read everyones opinion on SB. "Thinking differently" is what has made WEB so successful, and what is helping SB in his early years. It's also why these are my beliefs in BH...I know not everyone would agree, but that's what makes the world go around: 1) I sleep well knowing my manager is keeping expenses tight during the turn-around of the businesses WE own. He did this with SNS in the beginning and is still continuing. Now with the Maxim acquisition, probably doing the same b/c it is in need of change to improve. But expenses today are an investment for long-term cash flows. 2) He's focused solely on good returns on capital when investing. He's had many businesses/investments land on his desk but hasn't pulled the trigger when most managers would b/c they would be praised for "expanding the empire." He's very much got the mentality of an essentialist....it's either a hell yes or a no. He won't waste time or money on mediocre results. (Even though, couldn't he increase his incentive compensation today by merely adding any business to simply grow BV??). I view his high intelligence to limiting capital to areas of competency very valuable. 2A) All security investments (that have been public..reported on 13F) have worked out well except for CCA Industries (had to write off, still under cost, then transferred to TLF) and ITEX Corp. (still held by Western...you never know what might happen, even though it would be a small impact to the company if purchased). When investing LARGE sums of capital, he focuses on business he thoroughly understands. This concentration of capital reduces the investment risk, even though risk still does exist, don't get me wrong. I share the same belief, and would rather see this type of portfolio than one say a mutual fund runs with hundreds/thousands of small holdings. 2B) With all the business purchase opportunities that I'm sure he's been presented with, he only jumps at those he understands, can make/ or do make good returns on equity, and have great long-term prospects. He is aided in this by putting people on the BOD that have experience in these industries. If he wanted BH to grow just to grow, he could've done that by now. Western - wasn't the best buy, but consolidated his interests under BH at the time. SNS - turned it around, it's been coining cash, good long-term prospects, is creating a brand out of it. Maxim - great name in mens magazines, purchased at what the market believes was a cheap price, is investing lots of money (mgmt shakeup, paper, ads, etc) at the cost of short-term earnings in exchange for long-term cash flow. First Guard - most people probably wouldn't agree, but I see this as BH getting into the insurance game. SB has talked about insurance forever, but starting fresh is difficult to do. This purchase, even though small and non-float producing, gets the BH name out there to regulators. BH has to start somewhere. This will be a stepping stone to expand First Guard into other areas or start a new insurance company. Again, SB will be cautious and opportunistic in insurance. 3) I'm a net buyer of stock for many years, so I do wish the stock price will languish. It has, since he's been reinvesting earnings back into the businesses to improve them and not showing any glowing earnings report. He's maxed out the SNS franchise investments, is not re-investing in Western, etc. He knows when to stop, when ROIC are no longer attractive. All the while, IMO intrinsic value is increasing. It's a great time to buy! 4) There's always a lot of comparison to WEB and BRK, but I don't read a lot of comparing the 5yr old BH to BRK when it was 5 yr old. Let's talk about BH in 45 years and see how it would rank to BRK today...Sure, comparing them in todays market can make sense (I can hire a manager who treats me as an owner, doesn't take large compensation, is a grandfather folksy like role-model, is very conservative, and has a 50+ yr track record OR I can hire a young, aggressive manager with a 10 yr track record, starting a holding company from the ground up, where the future is not known, but I can support him early on and maybe become a Biglari millionaire?). But how could I compare a 50 yr old company, coining $1+ billion/month to practically a start-up? I invest in BRK b/c of the track record, diversification, fiscal conservation, and of course WEB. But I also invest in BH b/c of SB's track record and the potential of it being the next BRK. They are both great capital allocators and business managers. 5) Ego - I might have an ego if I've been as successful as he has. But I don't see it as ego, but more as confidence in himself. He doesn't pay attention to others criticism, which we know is important in the value investing world....holding to your conviction when the market is telling you you are wrong. If it were ego, wouldn't he be parading around announcing to everyone how great he is, his investments are, etc.? He's established the name "Steak n' Shake by Biglari".....he's trying to establish and build a brand name for quality and excellence. He also has the label of "activist" when concentrating his investments (CBRL). Didn't WEB/Munger kinda do the same early on?? Dempster, Berkshire, Blue Chip, Wesco, etc. If an investor wants to help the BOD enhance shareholder wealth (which isn't the way the media is presenting it, but rather he wants "control"), why should they not use the help? It makes them look better and in the end make shareholders wealthier. Is it entitlement that they don't want to be seen as not doing enough and an outsider was needed to increase wealth? Is that why CBRL has taken SB ideas and implemented them, with success, but no credit to SB? SNS wasn't going in the right direction, but with SB's "Control" it was changed....and shareholders are wealthier because of it? I'm not saying everything SB touches is becomes gold, but I would love to see what would happen to CBRL if he was able to sit on the BOD and successfully help implement value enhancing ideas. Who would say no to having the possibility of becoming wealthier?? 6) Compensation - SB is Chairman & CEO of BH, SNS, and Western. So his $900,000 salary might not be out of line for his responsibilities. He is running three companies. Would he reduce his salary if/when separate CEO's were hired for SNS and Western...maybe not. But in current time, you would still have to compensate two other CEOS for SNS and Western if he weren't doing it. His results for SNS have been well worth the pay, Western maybe not so much since it is a poor performer and the business is declining quickly. Performance based compensation - he is incentivized to increase shareholder wealth as much as possible. Not only through increase of his own ownership (personal holdings and his investment in TLF), but also by cash payment. I really like how WEB has run BRK for 50 yrs (increasing wealth alongside owners), but nothing will motivate someone to make more money, then by paying them more to do so. In a commission world - work and produce, get paid. Don't work or produce, don't get paid. It makes him find the acquire the best businesses and investments possible to grow our wealth as owners. I've hired him (holding stock) because I believe he can make a better return that I could, and in doing so, I want him to be paid for it. I enjoy reading everyones ideas and thoughts. This is a great place to discuss! Thanks for letting me share! Cheers! 8) Link to comment Share on other sites More sharing options...
giofranchi Posted August 25, 2014 Share Posted August 25, 2014 frugalchief, thank you very much for your post. It is exactly how I think about BH… and also how I like to reason about business in general! ;) The problem with the BH thread is that it is not evolving in any way… Some like BH, some don’t. And it just doesn’t change… We keep repeating the same things over and over again, but nothing changes… I guess only time will tell. Gio Link to comment Share on other sites More sharing options...
dcollon Posted August 25, 2014 Share Posted August 25, 2014 OZ files on BH OZ_Files_on_BH.pdf Link to comment Share on other sites More sharing options...
bargainman Posted August 29, 2014 Share Posted August 29, 2014 I was looking at my interactive brokers account and it looks like I got two of the rights offerings under corporate actions. One was dated August 15 and the other is dated August 26. They both look exactly the same of me and look to be the same offer, so I'm not sure why i got two. Did anybody else get this? Link to comment Share on other sites More sharing options...
giofranchi Posted September 2, 2014 Share Posted September 2, 2014 Update from the 10Q: shares outstanding on July 2nd 2014: 1,797,941 Equity: 553467 + 86101 = 639568 New shares = 359588 New capital = 89,897 Total new equity = 729465 Total new shares = 2157529 Equity per share = 338.10 P/B on Friday = 1.063 If all rights are exercized, there will be 1.721.150 + 344.261 = 2.065.411 shares outstanding. At yesterday's closing price $385.75, it translates into a market cap of: 2.065.411 x $385.75 = $797 million. Equity will be: $618 million + $86 million = $704 million. BH is selling for 797 / 704 = 1.13 x BV. Gio Well, if we calculate shares outstanding differently, we certainly get to different results… For the shares outstanding on July the 2nd I used the number on the last line of the first page of the 10q-Q3-2014 filing. For the shares newly issued I used the number on page 1 of the following document: http://www.sec.gov/Archives/edgar/data/93859/000092189514001793/form424b307428035_08132014.htm Under the title “Common Stock Outstanding after Right Offerings”. Why do our numbers differ? Gio Link to comment Share on other sites More sharing options...
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