Parsad Posted February 20, 2015 Share Posted February 20, 2015 Great move by GAMCO. +1! But then why would Gabelli doubt the intentions of such a wonderful, ethical and determined CEO? This is Gabelli we are talking about...he's pulled some stuff in his own time in terms of compensation. Cheers! Link to comment Share on other sites More sharing options...
Jurgis Posted February 20, 2015 Share Posted February 20, 2015 If Biglari does publicly give Gabelli what he wants, my prediction is that that would probably be well received by other institutional holders too. Yes, but is Mr. Big grown up enough to do it? ;) Link to comment Share on other sites More sharing options...
Txvestor Posted February 21, 2015 Share Posted February 21, 2015 Masterstroke by Gabelli. Link to comment Share on other sites More sharing options...
mateo999 Posted February 21, 2015 Share Posted February 21, 2015 Masterstroke by Gabelli. Just curious as to why you think it is a masterstroke? For anyone who is skeptical of Biglari (Sardar Biglari, the person, that is) - I would think that they would have wanted wayyy more from Gabelli in this letter. On one hand, for anyone skeptical of Biglari, you got Gabelli, a famous investor who owns about 10% of the company, to publicly challenge Biglari on this one point, but on the other hand, he didn't mention almost any of the things that frustrate some people. He is willing to support him, indeed he will publicly support him, for only abstention of Lion Fund shares. Gabelli is tacitly given approval, or at least not challenging, Biglari's incentive agreement, the manner in which he is running the company, the way the company is structured, or anything else. Thus, if I were skeptical of Biglari, and for some reason was a shareholder, or cared about the company for some reason unrelated to investing, I would frustrated by Gabelli's letter pledging support for Biglari if only the voting question is answered. NBL, I have a different takeaway. Gabelli knows SB's going to vote those shares for the incumbents. He simply can't help himself. Thus it's a fairly diplomatic method of leaving the option to fight open. Link to comment Share on other sites More sharing options...
Txvestor Posted February 21, 2015 Share Posted February 21, 2015 I think this pushes Mr Big to declare his intent, and to some extent requires him to understand/acknowledge that he works for the shareholders. If Mr Big is indeed a skilled and superior capital allocator, then which shareholder does not want him at the helm? On the other hand if he is a self serving, egotistical, individual, who allows his ego and self service to move resources from our pockets to his, while producing mediocre returns, then we should and would want to see him kicked out. Far from earning the trust of loyal shareholders, Mr Big appears set on wresting control from shareholders by slight of hand. There are many such examples in his axtions. The use of company funds raised through a rights offering, then shifting that to his hedge fund, to then vote for himself is a classic case in point. Personally i would like to be able to trust Mr Big, but his behaviour does not engender the same. Mr Gabelli's actions suggest he is in the same predicament. Link to comment Share on other sites More sharing options...
Parsad Posted February 21, 2015 Share Posted February 21, 2015 ...to move resources from our pockets to his... Are you a BH shareholder? Mr Gabelli's actions suggest he is in the same predicament I'm not sure his actions suggest anything of the sort. He specifically chose to not challenge any of the incentive payments, the Rights Offerings, or anything else. His actions are acquiring 10% of the company over the last few years - not diminishing his stake in any significant way (in fact growing it slightly over the last year) - and then only challenging one aspect of Biglari - the mirror voting/abstention issue. If Gabelli had any of the problems you suggest, it seems unlikely to me he would build a 10% stake and then write a letter such as this one without even so much as mentioning compensation or incentive payments. Gabelli can't comment on Biglari's compensation, because Gabelli's own compensation is even more egregious! At 10% of pre-tax profits with no hurdle or high watermark, Gabelli makes Sardar's compensation look like peanuts. GAMCO also has the very same dual-class structure Sardar wanted, so Gabelli is only able to make this one corporate governance point...the pot would be calling the kettle black on any other objection. Cheers! Link to comment Share on other sites More sharing options...
giofranchi Posted February 21, 2015 Share Posted February 21, 2015 Yes, as I have said before, I would like to pay Biglari less for his services... But let me ask a question: with the exception of Buffett, Watsa, Marks, Malone, and a handful of few others, do you believe Biglari's compensation is above, in line, or below the compensation of the average CEO and the average money manager? Thank you, Gio Link to comment Share on other sites More sharing options...
Txvestor Posted February 21, 2015 Share Posted February 21, 2015 I have a token position to keep an eye on it. I recently sold down my much larger position. Mr Gabelli is notoriously at the top of the corporate compensation ladder. Those that compound alongside their shareholder are rare but worth seeking out. Mr Big is keeping both roles ie as a hedge fund and CEO of a public company. I have no issue with his 2/20 structure or whatever he has at the Lion fund. Shareholders of public companies is a different matter. The problem I am having is with him trying to impose that hedge fund structure on a public company, and further him using company resources to vote himself control. He wants the benefits of a publicly losted company yet is not living up to the requirements. The other thing is sooner or later if he keeps this up is he will end up playing Tango with the SEC. I think he has already had a settlement with them. You can't live on the edge with federal regulators forever. Link to comment Share on other sites More sharing options...
giofranchi Posted February 21, 2015 Share Posted February 21, 2015 If I am not wrong, BH doesn't pay the 2% part of the 2&20 compensation agreement usually employed by money managers. Am I wrong? Gio Link to comment Share on other sites More sharing options...
Jurgis Posted February 21, 2015 Share Posted February 21, 2015 If you don't "trust" Biglari and have all of these different problems with him why not just forget about the company and invest in something else. Thank you very much, but we are quite capable to make our own decisions where to invest or not to invest. :) And it's actually quite fine to hold BH position and vote for Groveland. In fact, GAMCO might do that. Or are you going to tell them too to forget about the company and invest in something else? ;) Link to comment Share on other sites More sharing options...
muscleman Posted February 21, 2015 Share Posted February 21, 2015 If you don't "trust" Biglari and have all of these different problems with him why not just forget about the company and invest in something else. I am still lurking around even though I have no shares right now. I hope someone like FRMO's managers can take over. Then I would buy again. :) Link to comment Share on other sites More sharing options...
Txvestor Posted February 21, 2015 Share Posted February 21, 2015 We've been here before and I think I told you your advise is not necessary. I don't think I need nor want it. Why are you so keen to see those critical of Mr Big 'move on'? We each have our strategies and assessments, I nor any other board members are repeatedly telling you to buy more shares? Are they? Stick to the merits of the discussion. Link to comment Share on other sites More sharing options...
giofranchi Posted February 21, 2015 Share Posted February 21, 2015 Shalab, Sincerely at this point I don't care much about what Gabelli says or does, about what Groveland says or does... About what pretty almost anyone says or does... What I truly care about is that Biglari concentrates on business only, not being worried nor bothered by politics at all. And I want to monitor with a critical eye all decisions of his. If I see rational business decision making, I have no doubt I'll make lots of money. If and when I start to see judgments on his part that fall short in rationality, I will sell my shares and move on. It is that simple, though not easy! ;) Gio Link to comment Share on other sites More sharing options...
merkhet Posted February 21, 2015 Share Posted February 21, 2015 We've been here before Indeed. Interesting insights, new thoughts, a new way of looking at a company are always fantastic and constructive for all concerned. A few posters, though, on this particular topic are perseverating. They post something to this effect over and over: "The company is interesting; looks cheap on a sum of the parts valuation; Sardar Biglari is potentially a talented capital allocator; but I don't trust him at all/he's diverting shareholder funds to his own pocket/will he enrich shareholders and himself or just himself...etc....etc." Those points have all been well made - so I just think it is worth pointing out when these same exact arguments get cycled back in - that it is worthwhile to focus on other investments unless someone has something new to add. For instance, I once posted a detailed valuation of the company but I do not post it over and over again. For people that "do not trust Biglari" they have an even more cogent reason to focus on other companies. If you do not trust management, that is an easy 'move on" - congrats work done on that company - there are a few other thousand to think about. But to continue posting the same exact points "don't trust him/though its cheap, he's lining his own pockets/he doesn't care enough about shareholders/etc." over and over without new insight, is not constructive. This is why I need to point out that moving on is a good option. I think writing a detailed valuation of another company would be more useful, for everyone, than continually posting something to the effect of "I don't trust Biglari." Well, this is the Internet after all... I find it slightly odd that you find perseveration odd given the medium. :) I suspect that some posters would say that continuing to post about how people with a less than charitable view towards the company should move on "is not constructive," and that they too feel the "need to point out that moving on (from Biglari Holdings) is a good option." This, of course, is the primary reason anyone anywhere argues -- the inability to see why those stubborn a-holes on the other side just can't see/understand what you can so clearly see/understand. :) I have been following this thread with growing interest. My guess is that if Biglari wins with a very healthy margin, that will be bad long-term for the shareholders. If he wins with a very narrow margin, it will be good long-term for the shareholders. If Groveland wins, then it will probably also be good long-term for the shareholders. Link to comment Share on other sites More sharing options...
merkhet Posted February 21, 2015 Share Posted February 21, 2015 It occurs to me that the best thing for Groveland right now would be if someone came out with a campaign to force out Biglari completely. As it stands, the vote will likely be done off the heuristic of pro-/anti-incumbent voting. Some people might be in the middle -- thinking Biglari is a good allocator but slightly sketchy and yet not quite be willing to jump to the "anti-incumbent" side. However, by introducing a third and more strongly anti-incumbent side, it would free up more fence-jumpers from the middle to vote with Groveland. Link to comment Share on other sites More sharing options...
wescobrk Posted February 21, 2015 Share Posted February 21, 2015 Shalab, Sincerely at this point I don't care much about what Gabelli says or does, about what Groveland says or does... About what pretty almost anyone says or does... What I truly care about is that Biglari concentrates on business only, not being worried nor bothered by politics at all. And I want to monitor with a critical eye all decisions of his. If I see rational business decision making, I have no doubt I'll make lots of money. If and when I start to see judgments on his part that fall short in rationality, I will sell my shares and move on. It is that simple, though not easy! ;) Gio Good statement, Gio. As an aside, I hope Groveland loses as he really doesn't have any skin in the game. He seems to be making a political statement instead of trying to make money, which I presume is the reason his LP's gave him money in the first place. Link to comment Share on other sites More sharing options...
ragnarisapirate Posted February 21, 2015 Share Posted February 21, 2015 This really is interesting, as it would seem to put Biglari between a rock and a hard place with iss and the like... Having a lot of institutional ownership could really bite Biglari here. Link to comment Share on other sites More sharing options...
abitofvalue Posted February 22, 2015 Share Posted February 22, 2015 Interesting move by Gamco eh? Wonder if Mr. Bigs has the gumption to take on Mario like he did when Groveland filed against him. From the peanut gallery - would be simply hilarious to see Bigs try to demand Mario improve corporate governance at Gamco rather than worry about other companies with a filing like he did against Groveland...Doubt it happens as I don't think Bigs is stupid but would certainly be entertaining. Link to comment Share on other sites More sharing options...
Parsad Posted February 22, 2015 Share Posted February 22, 2015 Yes, as I have said before, I would like to pay Biglari less for his services... But let me ask a question: with the exception of Buffett, Watsa, Marks, Malone, and a handful of few others, do you believe Biglari's compensation is above, in line, or below the compensation of the average CEO and the average money manager? Thank you, Gio I think that's where you've completely missed the mark Gio! It's never been about the dollar amount, but the structure and how he went about getting what he wanted. Even when I had a 2-hour conversation with him and Phil at the Omaha Marriott, the weekend when he announced his structure, I did not have a problem with it...just the hurdle and percentage of the incentive fee since it was captive capital. But what broke the camel's back was the various attempts at passing or bypassing shareholder's wishes to institute the package he wanted...sell Lion Fund then buy it back and fold BH's assets into Lion Fund. Sardar would have been a very rich man in the future regardless...he just wanted to get there a lot quicker than shareholders thought he should! Cheers! Link to comment Share on other sites More sharing options...
cobafdek Posted February 22, 2015 Share Posted February 22, 2015 NBL, thanks for shedding more color to your thesis - so essentially, you are betting on "Biglari the jockey" and it is not just a valuation play. Would you mind disclosing what percentage of your portfolio is BH? Ditto. And do you apply the "Biglari discount" to your valuation, or to the percentage allocated to your portfolio? Link to comment Share on other sites More sharing options...
vinod1 Posted February 22, 2015 Share Posted February 22, 2015 I will post longer sometime this week outlining my valuation of the company and discussing the Biglari Discount/etc. Looking forward to your post. Maybe you would address this, but just wanted to get your thoughts on using market value in a sum of parts valuation. When we have an operating firm that has a few marketable securities like BH has with Cracker Barrel, to me using the market value of Cracker Barrel to estimate IV of BH seems to be taking "advice" from the market. Especially when it is a very significant part of the valuation, should we not use the intrinsic value of Cracker Barrel to estimate IV of BH? I see this kind of analysis with Lowes, etc, but it does not seem right to me. What are your thoughts? There are too many issues with hedging or shorting Cracker Barrel, so that is not really a good option. Thanks Vinod Link to comment Share on other sites More sharing options...
cobafdek Posted February 22, 2015 Share Posted February 22, 2015 My investment in BH is based just on valuation. To answer your question, it is a very small percentage of my portfolio but a slight majority of the capital that I have allocated in the six months or so has gone to it. I will post longer sometime this week outlining my valuation of the company and discussing the Biglari Discount/etc. My interest in your take on the "Biglari Discount" is related in part to what I recently re-read in the scriptures, where I found this bracing gem of a comment: "You cannot make a quantitative deduction to allow for an unscrupulous management; the only way to deal with such situations is to avoid them." (Graham&Dodd, 1934, p. 378. Also, 1940 edition, p. 433.) One could re-phrase these words as "If you believe management is unscrupulous, then you cannot make a quantitative deduction to allow for such (and you do not buy any amount of stock)." So that a logically equivalent statement (the logicians would call it the contrapositive statement) is: "If you make such a quantitative deduction (or buy the stock), then you do not believe management is unscrupulous." Many on this thread clearly believe Biglari is well within the unscrupulous end of the spectrum (unethical, evil, etc.), and they vote their beliefs by holding no stock. Others see him as a gifted entrepreneur/businessman (closer to the virtuous end of the scale but not 100% virtuous), and, like giofranchi, ridicule the very validity of the idea of a "Biglari Discount." Reading all your posts here, and since you own some BH, I believe you are somewhere in the middle. Clearly not "unscrupulous," using Graham's words, but are you sure your "small position" is not larger because your doubts about Biglari's persona and character will have a negative impact on the company and stock? I am hoping for some actual numbers, because that term "Biglari Discount" has been thrown around a lot in this thread, but without even ballpark figures attached. It would be interesting to see if someone's Biglari Discount means a haircut of 25% off his calculation of IV, or if her portfolio allocation of 5% (?) would have been 10-15% without applying the discount. Link to comment Share on other sites More sharing options...
Hielko Posted February 22, 2015 Share Posted February 22, 2015 NBL, thanks for your detailed thoughts. FWIW: I'm not invested in BH, but I'm someone who would consider it at the right price. I don't fully agree with your logic though, although I might be misunderstanding what you want to say. I agree that everybody should incorporate the direct expense component of employing Biglari in the valuation of the company, but I think you are framing the other aspect of him quite favorably for yourself by calling it the non-quantitative side of the equation since it allows you to ignore it and even consider this part of the discount somewhat irrational since "the math" supports a higher valuation. I personally think that this is a bit of an easy way out. Sure, you can't figure out an appropriate discount for "Biglari" as a person with mathematical precision, but that doesn't mean there is nothing you can do quantitatively or that you can completely ignore it. For example: Biglari has managed to grow his potential future performance awards. Is the right "mathematical" discount based on the current fee structure, or should we incorporate the historical growth of these fees in the equation? Should this really be grouped under the non-quantitative aspect of the equation? And isn't it possible to estimate the value of the license agreement that was given to him? Or the value of acquiring voting control without paying for it personally through the Lion fund? I see al kinds of quantitative angles here. It's not an "I don't like the guy" I throw a random number on it for a discount kind of thing. And with respect to the fact that Biglari has put his money where his mouth is and that he spends all his time thinking about his investments: I expect that 1. most CEO's of (public) companies spend most of their time thinking about their business and 2. having people put their money where their mouth is, is good, but it far from a guarantee for success since as an outside shareholder something that is good for Biglari is not necessarily good for everybody else. There are tons of public companies that are majority owned by insiders - so the same alignment of incentives - and where minority investors have been screwed in some way. I actually think that unscrupulous management is way more often a problem at companies that are controlled by insiders than at companies where management doesn't own a meaningful stake since those companies are such as easy target - and rightly so - for activist investors. Link to comment Share on other sites More sharing options...
vinod1 Posted February 23, 2015 Share Posted February 23, 2015 As a value investor, I couldn't agree with you more that just taking a pass through market valuation is not the most useful way to do it. As a shareholder of BH, I value CBRL every quarter also. In fact, I feel like I've spent far more of my life then I would have liked learning everything there is to know about Cracker Barrel over the last year. With that said, as shorthand I do cite the market valuation of Biglari Holdings' Cracker Barrel stake because it is a lot simpler than a long long valuation and because for most of the last year the CBRL market price was in the range of my intrinsic value estimate, though that is no longer true. With CBRL's steep rise over the last four or five months, it is greater than even my outer bound of valuation - so my own intrinsic value calculation is what I use in my own valuation - though it is not far enough off the market price to write a 23 page post here valuing Cracker Barrel - so I probably won't go into it on that depth. Thanks! Makes a lot of sense. Since Cracker Barrel is such a large component of the value of BH, I would think it makes sense to spend as much time as you did on Cracker Barrel. With respect to your point of the view that there are too many issue hedging or shorting Cracker Barrel, I do not share that perspective. While I do not think BH shareholders should necessarily go that route and will probably do better by not hedging CBRL, if an investor is really concerned about CBRL's market price and thinks it is significantly overvalued - I look at the option prices from CBRL from time to time and I think someone could hedge against a large CBRL share decline pretty inexpensively by buying puts. This is really true since the run-up in price last year. With that said, I wouldn't worry about it that much, because over the long-run I think Sardar Biglari probably wants CBRL's share price to decline in the future. In less than two years - he can buy the whole company or greater portions of it and he could win proxy contests in the future if CBRL's share price dropped dramatically in a short-ish amount of time. Biglari never really had a chance in the proxy contests because the share price of CBRL went up so much after he bought it. It is essentially impossible to win a proxy contest if shareholders are getting a great market return in a short amount of time. Institutional shareholders always vote for incumbents in that circumstance. If the share price stagnated for a year or two and then went down say 30%, Biglari I think could actually win a proxy contest. So because of this, I think that is a very significant hedge against a very large drop in the price of CBRL over the next few years. If CBRL's share price goes from $135 ($3.3 billion market cap or so) to say $90 a share over the course of a year, then the proxy fights would have a completely different tenor. This is actually why the JP Morgan forward contract is interesting, because it gives Biglari the optionality to either (A) get out of the investment or (B) carry forward with a proxy fight if the above scenario plays out. I see options only 6 months out. If I want to protect with say $130 strike price, the cost is about $8 for roughly six months, so we are looking at around $30 for two years of protection since that would be the minimum holding period. To me that is pretty expensive at about an annual cost of about 11%. The hedge part is interesting but why do you think BH would be able to buy out CBRL since, buying out just another 30%stake would cost nearly a $1 billion. Thanks Vinod Link to comment Share on other sites More sharing options...
giofranchi Posted February 23, 2015 Share Posted February 23, 2015 I think that's where you've completely missed the mark Gio! It's never been about the dollar amount, but the structure and how he went about getting what he wanted. Even when I had a 2-hour conversation with him and Phil at the Omaha Marriott, the weekend when he announced his structure, I did not have a problem with it...just the hurdle and percentage of the incentive fee since it was captive capital. But what broke the camel's back was the various attempts at passing or bypassing shareholder's wishes to institute the package he wanted...sell Lion Fund then buy it back and fold BH's assets into Lion Fund. Sardar would have been a very rich man in the future regardless...he just wanted to get there a lot quicker than shareholders thought he should! Cheers! Sanjeev, I know… But I care much more about “cash” and “rationality”… If Biglari keeps making “rational” business choices, and doesn’t take too much “cash” out of the company as personal compensation… I simply don’t see how shareholders couldn’t help but making lots of money. I repeat: if and when I see a lack of business “rationality” and/or a compensation that would mean not enough cash flow left for the remaining shareholders… then I am gone! ;) Cheers, Gio Link to comment Share on other sites More sharing options...
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