BH - Biglari Holdings

[innerscorecard]

I wonder if anyone here is buying additional BH shares after the tender offer announcement, plan to keep the shares and secretly hoping that the tender offer will get over-subscribed? ;)

 

I like the idea of the tender, but being a small investor I was pissed when I heard the news!  Been saving my dollars to buy the shares at $350 only to have them rise. Argh! :'(  Guess I'll just save for the next rights offering  8)

 

Yes, I also found the timing of the tender offer (which as many have pointed out in this thread) rather unfortunate. Thankfully, I was able to acquire a meaningful stake relevant to my small portfolio (but obviously inconsequential compared to the holdings of everyone else on this board) in BH in the weeks after the proxy vote. (I've had a smaller, inconsequential stake since 2014.) My timing wasn't great, as I started buying far too early, but the prices I was able to buy were satisfactory to me, and I bought up to my full desired allocation in my portfolio. I stopped buying when that allocation was met, although the price became a lot more attractive. If the price stayed around $350 or got even cheaper for longer, I would have been able to acquire a larger stake in BH as I gradually save and invest money every month.

 

According to my extremely rough calculations (for one, I am not sure of example how much cash is in The Lion Fund - obviously we know how much is in The Lion Fund II), Biglari Holdings, now at just a little bit over BVPS, is still obviously trading at a substantial discount to the sum-of-its-parts, even with a holding company discount and/or Sardar Biglari discount, both of which I do not expect to disappear any time soon. Based on my crude look at the sum-of-the-parts, I think the company, even factoring in both these discounts, is still worth at least 1.2-1.3 BVPS, and obviously possibly (but only possibly) more with the business-results-dependent optionality of Steak n Shake franchising, Maxim, and Sardar Biglari's future investments.

 

So I am not selling or tendering.

 

Although I consider BH safe chiefly because of the low price paid for the different segments of value owned by the company, I also think, after reflecting on Sardar Biglari's previous actions over the last decade or so, as publicly disclosed, that I think there is safety because I consider the Sardar Biglari specific reasons behind why the company is cheap, which seem to be the main reasons for why the company is cheap, to not justify such a discount to the value of the company. I simply think the way in which the relationship between BH shareholders, BH, and Sardar Biglari and other related interests is structured and disclosed, and has historically been structured and disclosed, is acceptable to me personally. I can see why it is absolutely not, to others. And I'm glad that I know that. I want to buy things that others won't.

 

We shall see if my decision to accumulate BH shares has been a good one. I've never met Sardar Biglari personally, much less have any reason to say that I can be an adequate judge of his character. As we've discussed before here, it is definitely a negative that people who know him better than most, like Parsad and Gabelli, have denounced him publicly.

 

He really could be simply fundamentally vicious.

 

But on the other hand, that perversely gives me comfort. It is so obvious why BH is cheap. That is one factor I think is important when I make an individually meaningful investment. I really, really, don't want to buy things that are cheap for reasons I am not aware of. BH isn't that.

[CalvinL]

It is so obvious why BH is cheap. That is one factor I think is important when I make an individually meaningful investment. I really, really, don't want to buy things that are cheap for reasons I am not aware of. BH isn't that.

Vicious or not, I think most could agree that he's at least a rational thinker for his own interest. The cheapness of BH is partly a result of the perception of his viciousness in the market.

 

Now a fun thought exercise...So let's assume that SB is going to act completely vicious, yet rational, and consider only his own fortune in the next 5-10 years, with no regard to his reputation in the long run. And let's say he's smart enough not to commit anything that would get himself in jail.

 

What are the worst things he could do to BH shareholders that benefit himself? Let's put up the most negative thought you could come up with :D

[innerscorecard]

It is so obvious why BH is cheap. That is one factor I think is important when I make an individually meaningful investment. I really, really, don't want to buy things that are cheap for reasons I am not aware of. BH isn't that.

Vicious or not, I think most could agree that he's at least a rational thinker for his own interest. The cheapness of BH is partly a result of the perception of his viciousness in the market.

 

Now a fun thought exercise...So let's assume that SB is going to act completely vicious, yet rational, and consider only his own fortune in the next 5-10 years, with no regard to his reputation in the long run. And let's say he's smart enough not to commit anything that would get himself in jail.

 

What are the worst things he could do to BH shareholders that benefit himself? Let's put up the most negative thought you could come up with :D

 

I actually think many think he is not only vicious, but also irrational and stupid.

 

Decisions he has made that could be classified as perhaps not only anti-shareholder, but also irrational:

 

- Increasing his explicitly disclosed compensation to a degree which would cause a backlash that drove away many of his supporters and kept down the price of BH stock, making his goal to grow both his own net worth and his business harder;

- Adopting measures such as the licensing agreement which seemed to actually increase challenges to his management of the company rather than keep them away;

- Purposely attracting comparisons to Berkshire Hathaway and Warren Buffett and then disclaiming them later, once the damage caused by expectations has already been incurred;

- Badly executed purchases of Groveland holdings in conjunction with the proxy contest;

- Suboptimally timed share repurchases of BH stock by TLF.

 

So many of Sardar Biglari's actions clearly seem to at least have been misjudgments in retrospect, even with regards to his own self-interest.

 

The worst legal actions I can think of from this point are funneling more money into The Lion Funds, diluting the share of the Lion Funds owned by BH, and draining wealth from shareholders to the Biglari family through increased personal compensation to himself and his family members. There is also some risk of pride projects that do not work out, such as if Maxim is not only a failure but one which did not have good odds of success in the first place.

[redskin]

What are the probabilities of the tender not happening?  Pretty juicy 1 month returns with stock trading around 407.

[racemize]

It is so obvious why BH is cheap. That is one factor I think is important when I make an individually meaningful investment. I really, really, don't want to buy things that are cheap for reasons I am not aware of. BH isn't that.

Vicious or not, I think most could agree that he's at least a rational thinker for his own interest. The cheapness of BH is partly a result of the perception of his viciousness in the market.

 

Now a fun thought exercise...So let's assume that SB is going to act completely vicious, yet rational, and consider only his own fortune in the next 5-10 years, with no regard to his reputation in the long run. And let's say he's smart enough not to commit anything that would get himself in jail.

 

What are the worst things he could do to BH shareholders that benefit himself? Let's put up the most negative thought you could come up with :D

 

I actually think many think he is not only vicious, but also irrational and stupid.

 

What if he wants to drive the share price down so he can buy more of it himself?

[giofranchi]

What if he wants to drive the share price down so he can buy more of it himself?

 

In this case his interests coincide with mine! ;)

 

Cheers,

 

Gio

[innerscorecard]

It is so obvious why BH is cheap. That is one factor I think is important when I make an individually meaningful investment. I really, really, don't want to buy things that are cheap for reasons I am not aware of. BH isn't that.

Vicious or not, I think most could agree that he's at least a rational thinker for his own interest. The cheapness of BH is partly a result of the perception of his viciousness in the market.

 

Now a fun thought exercise...So let's assume that SB is going to act completely vicious, yet rational, and consider only his own fortune in the next 5-10 years, with no regard to his reputation in the long run. And let's say he's smart enough not to commit anything that would get himself in jail.

 

What are the worst things he could do to BH shareholders that benefit himself? Let's put up the most negative thought you could come up with :D

 

I actually think many think he is not only vicious, but also irrational and stupid.

 

What if he wants to drive the share price down so he can buy more of it himself?

 

I don't see talking down the stock price in the short or even medium term as the same kind of risk to the business as the others I mentioned. I could certainly see one of those kinds of actions leading to this result, however.

[CalvinL]

Law Offices of Howard G. Smith announces that it is investigating potential claims against the Board of Directors of Biglari Holdings, Inc. (“BH” or the “Company”)(NYSE:BH) related to the June 4, 2015, announcement that The Lion Fund II commenced a tender offer for cash up to 575,000 shares of BH common stock. The Lion Fund II is controlled by the Company’s CEO and Chairman, Sardar Biglari. The investigation concerns whether the Board of Directors has breached their fiduciary duties to BH stockholders.

 

Anyone understand what this is all about?

[innerscorecard]

I contacted Howard Smith to ask for more information about the investigation. My e-mail message to his e-mail in the press release was immediately rejected by his firm's e-mail delivery system, due to his message box being too full.

 

Morning EST will be a time to follow up with a call.

 

I wonder why the press release was timed to hit the wires not during business hours on the US East Coast, where the firm is located.

[NBL0303]

Alas, it has become standard fare in the corporate world for a shareholders derivative lawsuit to be filed when any major corporate action such as merger, acquisition or large tender offer occurs.  These law firms that specialize in this have been often characterized as shakedown artists as these suits are often settled and the terms of these settlements are almost always the same with only nominal payouts to shareholders but, of course, with generous attorney's fees paid to the firm that filed the suit.  It is, perhaps, one of the most detestable aspects of modern corporate law.  Whenever you see a large corporate action, it is almost guaranteed that a suit such as this one follows.  For instance, Berkshire's acquisition of Burlington Northern had its customary associated lawsuit: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax4ePJ9CPFAg.  This suit, as with essentially all of these types of suits, was settled on January 18, 2010.

 

Though the legal justifications for suits such as these differ based on whether the suit relates to a merger, acquisition, tender offer or whatever corporate action is in question, the merits matter not, these are simply opportunities for opportunistic lawyers to extract their pound of flesh.

 

This forum is a great place to have a discussion about the merits, corporate governance dynamics and the economic pros and cons of the large Biglari tender offer, but I dearly hope that posters here do not give any time of day to a lawsuit from a firm such as this one.

[wescobrk]

Reminds me of what ELon Musk (from the Ashlee Vance book) said about the guy that kept suing him with frivolous lawsuits, "go do something productive with your life"

[innerscorecard]

Alas, it has become standard fare in the corporate world for a shareholders derivative lawsuit to be filed when any major corporate action such as merger, acquisition or large tender offer occurs.  These law firms that specialize in this have been often characterized as shakedown artists as these suits are often settled and the terms of these settlements are almost always the same with only nominal payouts to shareholders but, of course, with generous attorney's fees paid to the firm that filed the suit.  It is, perhaps, one of the most detestable aspects of modern corporate law.  Whenever you see a large corporate action, it is almost guaranteed that a suit such as this one follows.  For instance, Berkshire's acquisition of Burlington Northern had its customary associated lawsuit: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax4ePJ9CPFAg.  This suit, as with essentially all of these types of suits, was settled on January 18, 2010.

 

Though the legal justifications for suits such as these differ based on whether the suit relates to a merger, acquisition, tender offer or whatever corporate action is in question, the merits matter not, these are simply opportunities for opportunistic lawyers to extract their pound of flesh.

 

This forum is a great place to have a discussion about the merits, corporate governance dynamics and the economic pros and cons of the large Biglari tender offer, but I dearly hope that posters here do not give any time of day to a lawsuit from a firm such as this one.

 

That's apparent from the huge list of current lawsuits on the firm's website, compared to the size of the firm. I am curious as to what the firm will say, if I am able to get through.

[innerscorecard]

Smith told me that the impetus for the case is that minority shareholders will be disadvantaged because Sardar Biglari is "on both ends of the transaction," the Company's position will make a legal challenge difficult, and so a preemptive action is necessary to make sure that shareholders get a fair price. Obviously, to participate in the lawsuit, one cannot tender one's shares. And obviously the intent of the suit is to have the insurer of Biglari Holdings pay for it.

 

So nothing groundbreaking.

[giofranchi]

So nothing groundbreaking.

 

Mmm... Actually I don't even understand what that means! ;)

 

A fair price?!... For what I know no one is forced to sell, right? If I knew someone who owns 1 BRK-A, and I let him know I am willing to buy that share for $1, and he finally agrees to part with his 1 BRK-A share for $1... have I done something against the law?!

 

Gio

[gfp]

Gio I think the concept is that of a control premium.  You can give away control, but probably only once.

 

 

So nothing groundbreaking.

 

Mmm... Actually I don't even understand what that means! ;)

 

A fair price?!... For what I know no one is forced to sell, right? If I knew someone who owns 1 BRK-A, and I let him know I am willing to buy that share for $1, and he finally agrees to part with his 1 BRK-A share for $1... have I done something against the law?!

 

Gio

[NBL0303]

Smith told me that the impetus for the case is that minority shareholders will be disadvantaged because Sardar Biglari is "on both ends of the transaction," the Company's position will make a legal challenge difficult, and so a preemptive action is necessary to make sure that shareholders get a fair price. Obviously, to participate in the lawsuit, one cannot tender one's shares. And obviously the intent of the suit is to have the insurer of Biglari Holdings pay for it.

 

So nothing groundbreaking.

 

I wish very dearly that no one called them, took them seriously, reported on what they said or otherwise gave the time of day to shakedown artists.  You are taking their words far too seriously.  This is completely about getting generous attorney's fees.

[NBL0303]

Reminds me of what ELon Musk (from the Ashlee Vance book) said about the guy that kept suing him with frivolous lawsuits, "go do something productive with your life"

 

Amen.

[Txvestor]

These attorneys are the equivalent of ticks on a dog.

They take advantage of a Robin Hood mindset of the general public.

 

[bookie71]

I just wish that these slime balls could be counter sued by the shareholders.

[OracleofCarolina]

It'll be interesting to see what the committee is going to say. If the committee recommends shareholders to tender, they're blind to value and hinting that they think $420 is a fair price for the shares. If they recommends shareholders to keep the shares because $420 is undervalued, that's against SB's wish.

 

It'll be a tough call for the committee either way.

 

http://www.sec.gov/Archives/edgar/data/93859/000119312515222022/d941949dsc14d9.htm

 

On June 11, 2015, the Independent Directors met to consider the Offer. Based upon the potential for a conflict of interest resulting from the Company’s ownership of limited partnership interests in the Purchaser, the Independent Directors unanimously voted to recommend that the Board express no opinion and remain neutral with respect to the Offer. The Board, with Sardar Biglari and Philip Cooley abstaining, voted unanimously to accept the recommendation of the Independent Directors. Accordingly, the Company has not made a determination as to whether the Offer is fair to, or in the best interests of, its shareholders and is not making a recommendation regarding whether the Company’s shareholders should participate in the Offer.

 

The Company urges each shareholder to make his or her own investment decision regarding the Offer, including, among other things, the adequacy of the Offer Price, based on all of the available information and in light of the shareholder’s own investment objectives, the shareholder’s view with respect to the Company’s prospects and outlook, the matters considered by the Independent Directors, as noted below, and any other factors that the shareholder deems relevant to his or her investment decision.

 

[frugalchief]

Also interesting...

 

"On June 3, 2015, the Independent Directors approved the investment of up to $100 million in the Purchaser in exchange for limited partnership interests therein, fully understanding that the Purchaser would have complete discretion to use those funds to purchase securities, including shares of the Company’s Common Stock. On June 4, 2015, $63 million of the authorized $100 million investment was invested in the Purchaser in exchange for limited partner interests. In making that decision, the Independent Directors considered the past success of the Purchaser and The Lion Fund, L.P. in achieving above-average returns for its limited partners, including the Company. Because the Independent Directors believe that investing in the Purchaser is in the Company’s best interest and are aware that the Purchaser may use such invested funds to purchase shares of the Company’s Common Stock, the Company has an indirect interest in shareholders tendering their shares of the Company’s Common Stock pursuant to the Offer. As such, the Company and its shareholders have a potential conflict of interest regarding the Offer." (from page 10).

 

If they fulfill the $100mm, it'll wipe out most of BH's cash.

 

Also, if when BH does the next rights offering, that'll give TLF over 50% ownership since they'll certainly buy all their rights and any that are sold/not subscribed.

[gfp]

Another article from Antoine Gara at forbes -

 

http://www.forbes.com/sites/antoinegara/2015/06/14/biglari-holdings-warren-buffett-berkshire-jpmorgan-houlihan-lokey-tender-offer/

 

"Gabelli declined to comment whether he would participate in the tender, which expires on July 1, but he pointed out holdout investors will see their economic interests in the company rise as more shares are pulled into The Lion Fund. Shareholders, after all, own a significant majority of the fund."

 

Sounds to me like Gabelli isn't going to tender

[awindenberger]

Gara really has it out for Biglari, the bias in the piece couldn't be any stronger.

[giofranchi]

Gara really has it out for Biglari, the bias in the piece couldn't be any stronger.

 

I agree. And imo Forbes should choose its columnists with much greater care! ;)

 

Gio

[gfp]

This arb is pretty interesting at 404 -> 420