giofranchi Posted January 5, 2015 Share Posted January 5, 2015 A BH SEC filing on 12/16 disclosed the plan (a portion is cut and pasted below). The company just did a rights offering where BH received $250 per share, transferred the money to the Lion Fund and now They are going to start buying back stock at $400 a share? Does that make any sense? On December 17, 2014, the Lion Fund entered into a Rule 10b5-1 Trading Plan (the “Purchase Plan”) pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. Under the Purchase Plan, a broker dealer will make periodic purchases of up to an aggregate of 62,000 Shares on behalf of the Lion Fund at prevailing market prices, subject to the terms of the Purchase Plan. This description of the Purchase Plan does not purport to be complete and is qualified in its entirety by the text of the Purchase Plan, a copy of which is attached as Exhibit 99.1 hereto and is incorporated herein by reference. Yes - this makes a lot of sense if the shares are undervalued. It wouldn't make sense if the $250 share price was offered to the general public, meaning non-BH shareholders, but since the $250 per 5 rights was offered only to shareholders - that is not relevant to the market price the company is now re-purchasing their own shares at. The critical question for the share buyback (at least in economic and investing terms, their may be an ethical question regarding the timing of the buyback announcement), is whether BH's shares are undervalued. If so, then buybacks are value creating. (There is also a secondary question of whether, even if the shares are undervalued, this is the best use of capital - meaning the use of capital that generates the highest return.) Further, once the Rights Offering was completed, the proceeds are the company's to allocate; the only question then is - what use of the capital creates the highest return on capital. Thinking about where the funds came from at that point is actually akin to the sunk costs fallacy. Thus, if BH's shares are indeed undervalued, as presumably their shareholders believe they are, then the buybacks are a good use of capital. Obviously there is a difference of opinion whether this is ethical behaviour. Your assertion that once the funds are raised they are Mr. Bigs to allocate as he sees fit is non sense. Presumably there is a token BOD tasked with upholding all shareholder inerests. The funds raise was done under the implicit threat of dilution, and then instead of a straight buyback, he transferred them to his hedge fund to gain from a capital raise which he probably could not do on his own accord due to his perpetually eroding reputation. You apparently believe in the company and Mr Big, and presumably have your money where your mouth is, I am not here to convince anyone of anything, but incessantly defending self servig behaviour, trying to spin things and furthermore calling it a plus for shareholders is complete BS. Mr Big raising funds that way to then transfer into his hedge fund is NOT in shareholders interest. Well put. To me this makes no sense at all. I have never met anyone who runs a business and believes in “corporate democracy”. For those who manage funds, but have never run a business in their whole life, I quote from [amazonsearch]A Money Mind at Ninety [/amazonsearch] by Philip L. Carret, Chapter 26 “Corporate Democracy”: Let’s try to make democracy function in the seats of government and leave the conduct of business to businessmen, selected in a businesslike way. Gio Link to comment Share on other sites More sharing options...
mcmaaaaath Posted January 5, 2015 Share Posted January 5, 2015 Gio-- Who said anything about corporate democracy? More generally, do we know what the compensation structure is in the Lion Fund? Is it spelled out in the proxy? Does the $10m bonus cap limit what he can make on funds invested in the Lion Fund? Link to comment Share on other sites More sharing options...
OracleofCarolina Posted January 8, 2015 Share Posted January 8, 2015 Brief story on Steaknshake international expansion http://www.indystar.com/story/money/2015/01/07/steakburgers-dubai-steak-shake-closes-uae/21391499/ Link to comment Share on other sites More sharing options...
Parsad Posted January 8, 2015 Share Posted January 8, 2015 Any idiot could tell you that opening these stores in non-core markets would have some problems. And then you open stores in Cannes and Ibiza! It would be like opening up a See's Candies in Monaco, when you haven't even tackled the mid-west which is probably aching for some See's, not to mention more Steak'n Shakes. I was certain that the "by Biglari" signage on the new Steak'n Shakes would have guaranteed success and increased same store sales. Cheers! Link to comment Share on other sites More sharing options...
giofranchi Posted January 8, 2015 Share Posted January 8, 2015 Parsad's point is a prescient one though - expanding into markets that are so different and exotic when compared to, say, Missouri is clearly going to come with difficulties and significant risks. Ah!!… At last something I like to think about: business decisions, the strategic use of capital and resources in general! Very good, thank you! ;) Gio Link to comment Share on other sites More sharing options...
BTShine Posted January 16, 2015 Share Posted January 16, 2015 Apologies if this was already mentioned on the BH thread. There's a video online where Leon Cooperman spoke on Henry Singleton and his amazing work with Teledyne in terms of financial performance and capital allocation. One trick Mr. Singleton used was stock dividends and tender offers. According to Mr. Cooperman, Teledyne typically distributed stock via dividend every year (this is a non-taxable dividend), which apparently made shareholders more willing to sell their shares at a lower share price than otherwise Stockholder: "last year I had 200 shares...now I have 300 thanks to that dividend...maybe I'll sell 100 into this tender..." Mr. Cooperman is confident this allowed Teledyne to repurchase large portions of the share float at a lower price. Also, when buying back shares Mr. Singleton would offer to tender a certain number of shares at 30% - 40% above the market price. But, usually when the tender occurred, and more than the declared number of shares were offered into the tender, Singleton would buy all shares offered (not just the number of shares Teledyne declared as their intention to buy). Sometimes this meant 5+ times the tender offering amount were purchased and almost 50% of the float was bought back in one tender. This clearly was not always in the best interest of his fellow Teledyne shareholders. Something that would be criticized on CoBF (unless you're talking about John Malone?) But, Warren Buffett still praises Mr. Singleton as one of the best businessmen and capital allocators of his time. Am I the only one that thinks this is somewhat similar to what's going on at BH? I know BH is deservedly criticized for his golden parachute marketing agreement, etc. But, warrants distribution, etc. doesn't seem that different from the tools of Malone, Singleton, etc. Link to comment Share on other sites More sharing options...
grasshopper Posted January 17, 2015 Share Posted January 17, 2015 Parsad's point is a prescient one though - expanding into markets that are so different and exotic when compared to, say, Missouri is clearly going to come with difficulties and significant risks. Though since the Middle East Steak n Shakes are entirely channeled through the franchising model the actual capital risks to BH of these endeavors are somewhat minimal. (The Ibiza and Cannes Steak n Shakes though are company owned.) Expanding overseas with a low-value US brand and presenting it as a higher value brand overseas is also a great opportunity. I have lived myself in the Middle East for work...and lo and behold...one of the first restaurants I saw when I arrived at the small industrial desert town in the middle of nowhere was a good ol' neighborhood Applebees....yes you read that right...Applebees...and it was very very very popular, with a much more upmarket feel than in America I have also lived in a small town in China where they opened their first KFC (the first western brand in this town) which was greeted by a parade and fair. It's considered like a fun place to hang out..... Imagine that happening at your local Kentucky Fried Chicken in inner-city America with its neighborhood friendly drug dealer outside. I was born in SF and have never heard of Swenson's in my life, but it is one the the largest and very very popular ice cream chains in Thailand, and apparently it was just some small time ice cream parlor in the City...nothing special...I didn't even know it existed before. I'm not a Biglari acoloyte, just been reading this thread for interest, but I don't think the international expansion is a bad idea, and would be a great opportunity to re-brand a lower value middle america chain to a higher value overseas one. Of course there are still risks... Examples: KFC in China and Indonesia McD in Asia and South America (esp...McCafe.....i still can't believe how nice they are overseas) Swenson's in Thailand Pizza Hut in Asia (its a sit down restaurant with a larger italian menu) Krispy Kreme overseas Kenny Rogers Roasters.......(i couldn't believe this still existed when I went overseas!!!! KENNY ROGER's roast CHICKEN restaurants) Mexican Custard Buns (Rotiboy brand in SE Asia) All these brands are easily comparable to SNS....these aren't Cheesecake Factories or Shake Shacks or Pinkberries...just middle american brands that are mostly forgettable for urban North Americans... In any case, I don't think it's a bad strategy. I don't think Monaco or Ibiza are quite the right places for them, but who knows what things might catch on and become trendy. It should be noted that Burger King under 3G followed a similar strategy with international franchising... Adds alot of optionality to SNS...Imagine if it happens to just catch on in a developing market with a higher value added mindset attached to it. In terms of what it adds to the current value estimate....probably nothing, just stick to the sum of parts noted by NBL0303...but its not like this strategy is going to destroy SNS and it adds optionality... I would say this is probably a better plan than what is going on at sears at a strategy level for the operating business....however, I don't run a casual dining business or a department store, so my expertise on this is minimal. I just wanted to point out that this isn't a strategy without precedent and doesn't deserve so much bashing just because people don't like SB Disclosure: No position in BH....yet Link to comment Share on other sites More sharing options...
giofranchi Posted January 17, 2015 Share Posted January 17, 2015 In any case, I don't think it's a bad strategy. I don't think Monaco or Ibiza are quite the right places for them, but who knows what things might catch on and become trendy. It should be noted that Burger King under 3G followed a similar strategy with international franchising... Adds alot of optionality to SNS...Imagine if it happens to just catch on in a developing market with a higher value added mindset attached to it. In terms of what it adds to the current value estimate....probably nothing, just stick to the sum of parts noted by NBL0303...but its not like this strategy is going to destroy SNS and it adds optionality... I would say this is probably a better plan than what is going on at sears at a strategy level for the operating business....however, I don't run a casual dining business or a department store, so my expertise on this is minimal. I just wanted to point out that this isn't a strategy without precedent and doesn't deserve so much bashing just because people don't like SB Thank you! This seems to be out-of-the-box thinking, and surely not very popular on the board… But you already know I tend to agree with your line of thought. Cheers, Gio Link to comment Share on other sites More sharing options...
premfan Posted January 17, 2015 Share Posted January 17, 2015 Parsad's point is a prescient one though - expanding into markets that are so different and exotic when compared to, say, Missouri is clearly going to come with difficulties and significant risks. Though since the Middle East Steak n Shakes are entirely channeled through the franchising model the actual capital risks to BH of these endeavors are somewhat minimal. (The Ibiza and Cannes Steak n Shakes though are company owned.) Expanding overseas with a low-value US brand and presenting it as a higher value brand overseas is also a great opportunity. I have lived myself in the Middle East for work...and lo and behold...one of the first restaurants I saw when I arrived at the small industrial desert town in the middle of nowhere was a good ol' neighborhood Applebees....yes you read that right...Applebees...and it was very very very popular, with a much more upmarket feel than in America I have also lived in a small town in China where they opened their first KFC (the first western brand in this town) which was greeted by a parade and fair. It's considered like a fun place to hang out..... Imagine that happening at your local Kentucky Fried Chicken in inner-city America with its neighborhood friendly drug dealer outside. I was born in SF and have never heard of Swenson's in my life, but it is one the the largest and very very popular ice cream chains in Thailand, and apparently it was just some small time ice cream parlor in the City...nothing special...I didn't even know it existed before. I'm not a Biglari acoloyte, just been reading this thread for interest, but I don't think the international expansion is a bad idea, and would be a great opportunity to re-brand a lower value middle america chain to a higher value overseas one. Of course there are still risks... Examples: KFC in China and Indonesia McD in Asia and South America (esp...McCafe.....i still can't believe how nice they are overseas) Swenson's in Thailand Pizza Hut in Asia (its a sit down restaurant with a larger italian menu) Krispy Kreme overseas Kenny Rogers Roasters.......(i couldn't believe this still existed when I went overseas!!!! KENNY ROGER's roast CHICKEN restaurants) Mexican Custard Buns (Rotiboy brand in SE Asia) All these brands are easily comparable to SNS....these aren't Cheesecake Factories or Shake Shacks or Pinkberries...just middle american brands that are mostly forgettable for urban North Americans... In any case, I don't think it's a bad strategy. I don't think Monaco or Ibiza are quite the right places for them, but who knows what things might catch on and become trendy. It should be noted that Burger King under 3G followed a similar strategy with international franchising... Adds alot of optionality to SNS...Imagine if it happens to just catch on in a developing market with a higher value added mindset attached to it. In terms of what it adds to the current value estimate....probably nothing, just stick to the sum of parts noted by NBL0303...but its not like this strategy is going to destroy SNS and it adds optionality... I would say this is probably a better plan than what is going on at sears at a strategy level for the operating business....however, I don't run a casual dining business or a department store, so my expertise on this is minimal. I just wanted to point out that this isn't a strategy without precedent and doesn't deserve so much bashing just because people don't like SB Disclosure: No position in BH....yet Great post and insight. Link to comment Share on other sites More sharing options...
Txvestor Posted January 17, 2015 Share Posted January 17, 2015 Interesting 'out of the box' thinking, even if the dominant outside of US chain likelihood is less probable. The migration of US fast food chains outside of the US and EU is still in its infancy, but there are huge barriers to them as well. I agree with you that if there was to be a focus on international expansion, that a focus on middle east, asia and africa would make most sense. Not that Mr Big needs anyone's advise course. The comparison to sears operarions however is setting the bar really quite dismally low! I'm not sure whether the real estate angle will work out for SHLD, and it might, but from an operational retail angle, i just can't see a way out for fast eddie, and the inevitable outcome seems the eventual result, even if the timing is debatable. Link to comment Share on other sites More sharing options...
grasshopper Posted January 18, 2015 Share Posted January 18, 2015 Interesting 'out of the box' thinking, even if the dominant outside of US chain likelihood is less probable. The migration of US fast food chains outside of the US and EU is still in its infancy, but there are huge barriers to them as well. I agree with you that if there was to be a focus on international expansion, that a focus on middle east, asia and africa would make most sense. Not that Mr Big needs anyone's advise course. The comparison to sears operarions however is setting the bar really quite dismally low! I'm not sure whether the real estate angle will work out for SHLD, and it might, but from an operational retail angle, i just can't see a way out for fast eddie, and the inevitable outcome seems the eventual result, even if the timing is debatable. Again, I'm not saying that this means ANYTHING for a straight up valuation analysis. It's just one of the free options you get with SNS if you buy BH. SB has had zero-track record in pulling off this sort of international brand expansion and I haven't done enough scuttlebutt on the rest of the SNS team to see if he's hired anyone with this sort of experience. Most of the commentary on this thread about SNS is that it's a niche burger place for middle america that they personally wouldn't go to and therefore it doesn't have room to grow. Also, they think that SB is pretty much destroying the value of the brand by pissing off the US franchisees and putting his name on the sign. I'm just saying that SBs strategy of going international and go higher-value overseas is not a bad idea, and not without precedent, in the past, or even in current times. I've noted other examples in my previous post. You can even see 3G doing this with the Burger King/Tim Horton's rollout. I travel quite frequently across the world and I've been astonished at how quickly the Burger King rollout has been around the world. I saw a Burger King in HANOI VIETNAM!!! the other day...they even beat McDonalds there. Honestly, putting the "by Biglari" sign at the end for overseas franchisees probably makes it even sound more high end than it really is...perception is all that matters for people with zero to limited knowledge of America. What people don't realize when you go to some random chain in the US or Canada is that these brands have been stigmatized by urban culture in the US as being low value, junk food, processed, etc. etc. (Super Size Me, Fast Food Nation, etc) Overseas, these brands position themselves much differently and have much different economics. (See the Economist Big Mac Index or any Starbucks pricing in China) Again....I am NOT saying this will happen with SNS...alot will depend on his team and his skills as an operator, but I wouldn't just brush off the value of SNS from the sum of parts of BH. I would say that the Cracker Barrel part of the valuation is more risky considering SB has no control, limited to no influence, and faced with a hostile board who are itching to get him off their back. In addition to which he can't even really get out of his position very easily!! But if you consider you get almost everything else for free since the CBRL stake gets you the market price....its not a bad play... Probably similar to the story at Burger King/Tim Hortons...minus all the lovin for Buffett and the 3G guys. As for the Sears thing...that was probably a bad comparison. I was just trying to compare two similar jockey stocks with hedge fund managers trying to operate a business with low-value brand cachet. Obviously dept. stores and SNS are not the same things....but if I had to pick one of this situations to run myself....I would take the SNS international expansion... Link to comment Share on other sites More sharing options...
gfp Posted January 18, 2015 Share Posted January 18, 2015 Good article in the Indy Star - quotes Mario Gabelli, who's firm has 8.7% of BH -- http://www.indystar.com/story/money/2015/01/18/steak-shake-effort-oust-ceo-biglari-mix/21875805/ Link to comment Share on other sites More sharing options...
OracleofCarolina Posted January 18, 2015 Share Posted January 18, 2015 I think Gabelli wouldn't want to pick a fight over compensation...a lot of folks would argue he gets paid too much even though he is the founder....I was always thinking Gabelli gave his approval to Sardar on his controversial moves Link to comment Share on other sites More sharing options...
wescobrk Posted January 18, 2015 Share Posted January 18, 2015 This seems bizarre to me. Swenson put up less than a million dollars to wage a board replacement that will pay tens of millions of dollars the shareholders will lose (poison pill at BH under the royalty pay out) and a hedge fund they may not be able to control. He didn't even reach out to the largest outside holder before he did it and Gabelli is saying he won't vote for Swenson. There is already 30% right there against Swenson. He doesn't even make any money hardly, all this to double a one million dollar investment?? Wtf? the legal fees alone will eat into a lot of that. Doesn't seem very intelligent unless Swenson has some brilliant move that he can unveil. Very odd, in my opinion. Link to comment Share on other sites More sharing options...
BTShine Posted January 19, 2015 Share Posted January 19, 2015 This seems bizarre to me. Swenson put up less than a million dollars to wage a board replacement that will pay tens of millions of dollars the shareholders will lose (poison pill at BH under the royalty pay out) and a hedge fund they may not be able to control. He didn't even reach out to the largest outside holder before he did it and Gabelli is saying he won't vote for Swenson. There is already 30% right there against Swenson. He doesn't even make any money hardly, all this to double a one million dollar investment?? Wtf? the legal fees alone will eat into a lot of that. Doesn't seem very intelligent unless Swenson has some brilliant move that he can unveil. Very odd, in my opinion. According to the article "Gabelli said he wasn't sure if his firm would back the effort to replace the current board members" And then it writes Gabelli said, "Unless somebody has an overwhelming case... we vote for the incumbents" That tells me that Gabelli is not certain what his firm will do. It also invites Mr. Swenson to make an 'overwhelming case'. Link to comment Share on other sites More sharing options...
jschembs Posted January 19, 2015 Share Posted January 19, 2015 I'm a tourist in this string, and have no dog in the fight, but much of Sardar's actions (comp levels, de facto poison pill via the revenue royalty payments) reek of someone seeking to entrench and enrich themselves at the expense of outside passive minority investors (pardon the Marty Whitman reference)... Link to comment Share on other sites More sharing options...
merkhet Posted January 19, 2015 Share Posted January 19, 2015 Is there a way to invalidate the payouts to licensing his name? Link to comment Share on other sites More sharing options...
abitofvalue Posted January 19, 2015 Share Posted January 19, 2015 I really marvel at Sardar's creativity and ability to entrench himself at BH. Just like it takes a crook to catch a crook, it looks like it takes an activist to thwart an activist. He has signed agreements by which he is pretty much guaranteed employment for himself going forward. His lapdog board will give him whatever he wants by way of pay so you can rest assured Mr. Bigs will be paid handsomely no matter what happens to the stock or shareholder returns. When shareholders dare disagree and vote his self-serving pay increases down, he just finds a way around it. He even found a way to make money for himself from a buyback. By executing the buyback through the lion fund - he is going to get incentive payments when BH stock appreciates. As an added bonus he gets to vote those shares for his own benefit. Absolutely baffled that it's legal for the CEO of a public company, to use company funds to buy company stock outside the company. With regard to his BH pay - he can always just say investments in future, or intrinsic value grew much more than book or market value so the board agreed to a large bonus. The fact is he will be there in the future so he could wait till the market recognizes his value add but that would mean getting paid for actions only once. Why settle when you can get paid twice for the same actions, once when you implement the change and then again when the stock price increases if the change is actually good. That said, i think, the stock seems undervalued based on SNS operations and CB holdings. The big risk here is Mr. Bigs. He acts as though BH exists to get him on the Fortune 500. He is, imo, the most dangerous kind of manager - intelligent and unethical; which sadly makes this uninvestible for me. Swensons activism appears to be a joke - but what if a bigger activist comes along? Can i get comfortable that Mr. Bigs will act rationally? No he just blew millions of shareholder funds buying up stock in Swenson companies. How can I be sure he wouldn't do something as moronic if the party on the otherside was bigger? Mr. Bigs priority no 1. is Mr. Bigs. It's hard to find undervalued investments and its a shame when I find one that needs to be discarded because I can't get comfortable with management. Good luck to the longs - think you will do fine as long as Mr. Bigs does a little better and is moving up the Billionaire lists. Link to comment Share on other sites More sharing options...
giofranchi Posted January 20, 2015 Share Posted January 20, 2015 Swensons activism appears to be a joke - but what if a bigger activist comes along? Can i get comfortable that Mr. Bigs will act rationally? No he just blew millions of shareholder funds buying up stock in Swenson companies. How can I be sure he wouldn't do something as moronic if the party on the otherside was bigger? Well, as I have already said, it will be easy enough to watch Biglari closely: given his way of concentrating much capital in a few big ideas, each year I expect him to take just two or three truly meaningful decisions. There will always be plenty of time to ponder them thoroughly and carefully. I am very pleased about how he has dealt until now with this simply ridiculous nonsense by Groveland… I would have done the same! If and when another such attempt by someone larger should occur, I will watch Biglari’s actions, judge them, and act accordingly. Good luck to the longs - think you will do fine as long as Mr. Bigs does a little better and is moving up the Billionaire lists. And this is precisely the heart of the matter! You have written this as if it might be true for BH only. Instead, imo it is true always! You only have two possibilities in business: either things go well, or they go south. If things go well, you have two other possibilities: either the manager who makes things go well requires to be paid a lot, in which case you’ll end up making a lot of money, or the manager who makes things go well doesn’t require to be paid a lot, in which case you’ll end up making even more money! If things go south, you have only one possibility: to lose money! This is why I am much more interested in Biglari’s business acumen and capital allocation abilities than in how much I have to pay for them. It's hard to find undervalued investments and its a shame when I find one that needs to be discarded because I can't get comfortable with management. The reason why I invest in BH is management, much more than valuation! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
gfp Posted January 21, 2015 Share Posted January 21, 2015 Gabelli is up to 9.69% per this just-filed 13D: http://www.sec.gov/Archives/edgar/data/93859/000080724915000007/bh_07.htm "The aggregate number of Securities to which this Schedule 13D relates is 200,086 shares, representing 9.69% of the 2,065,566 shares outstanding as reported in the Issuer's most recently filed Form 10-K for the fiscal year ended September 24, 2014" Link to comment Share on other sites More sharing options...
giofranchi Posted January 22, 2015 Share Posted January 22, 2015 Paradoxically, this whole thing with Groveland strikes me as the perfect example of why Biglari’s strategies of entrenching himself make sense: with SNS Biglari has revealed a jewel, but a jewel he still cannot control simply trough direct ownership… and such a jewel might be sought after by many people! In such a situation those who want stability must think about defending themselves. Even if no attack should ever come. But I guess it is only when an attack, like the one Groveland is attempting right now, finally comes, that the usefulness of those defensive strategies is revealed. Basically two are the accusations moved against Biglari: 1) To entrench himself 2) To ask to be paid too much Imo Groveland has just shown that accusation n.1 has really no reason to exist. ;) Cheers, Gio Link to comment Share on other sites More sharing options...
BTShine Posted January 22, 2015 Share Posted January 22, 2015 Groveland filed a letter this morning. http://www.marketwatch.com/story/groveland-calls-for-improved-corporate-governance-at-biglari-holdings-2015-01-22 In general I like Groveland's proposals. Link to comment Share on other sites More sharing options...
Jurgis Posted January 22, 2015 Share Posted January 22, 2015 I will vote my shares for Groveland. ... and will get an extra bucket of popcorn! 8) Link to comment Share on other sites More sharing options...
frugalchief Posted January 22, 2015 Share Posted January 22, 2015 Can't wait to hear SB's response. This will be entertaining Link to comment Share on other sites More sharing options...
wescobrk Posted January 22, 2015 Share Posted January 22, 2015 Sardar only needs 20 percent, Swenson needs 49.9 %. The odds aren't in Swensons favor. I still don't understand why he only bought one million of stock. There aren't any new 13d filings indicating he bought more. I would be surprised if Swenson wins. Link to comment Share on other sites More sharing options...
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