awindenberger Posted February 22, 2016 Share Posted February 22, 2016 But more directly, the shares have not been acquired by the company-- they were acquired by the Lion Fund I and Lion Fund II, which are private investment vehicles. Biglari Holdings owns about 60% of Lion Fund I and 90%+ of Lion Fund II. Link to comment Share on other sites More sharing options...
mcmaaaaath Posted February 22, 2016 Share Posted February 22, 2016 "Own" is not correct. They are investors in the Lion Fund I and II and have the majority of LIMITED partnership interests. But they cannot remove the manager, don't control those entities, and thus do not consolidate those funds in their financial statements. Before the sale of Biglari Capital and liquidation of Western Acquisitions, L.P., the Company consolidated its affiliated partnerships in its consolidated financial statements, which included the accounts of (i) the Company, (ii) its wholly-owned subsidiaries Biglari Capital, Steak n Shake, and Western, and (iii) The Lion Fund, L.P. and Western Acquisitions, L.P. (the “consolidated affiliated partnerships”), in which the Company had a substantive controlling interest. As a result of the sale of Biglari Capital and the related liquidation of Western Acquisitions, L.P., the Company has ceased to have a controlling interest in the consolidated affiliated partnerships, which, accordingly, are no longer consolidated in the Company’s financial statements. So my understanding is that when one of the Lion Funds buy shares in BH, for legal purposes, this is not the same as BH owning those shares. I would certainly love to a hear a different legal theory, though. Link to comment Share on other sites More sharing options...
awindenberger Posted February 22, 2016 Share Posted February 22, 2016 "Own" is not correct. They are investors in the Lion Fund I and II and have the majority of LIMITED partnership interests. But they cannot remove the manager, don't control those entities, and thus do not consolidate those funds in their financial statements. Before the sale of Biglari Capital and liquidation of Western Acquisitions, L.P., the Company consolidated its affiliated partnerships in its consolidated financial statements, which included the accounts of (i) the Company, (ii) its wholly-owned subsidiaries Biglari Capital, Steak n Shake, and Western, and (iii) The Lion Fund, L.P. and Western Acquisitions, L.P. (the “consolidated affiliated partnerships”), in which the Company had a substantive controlling interest. As a result of the sale of Biglari Capital and the related liquidation of Western Acquisitions, L.P., the Company has ceased to have a controlling interest in the consolidated affiliated partnerships, which, accordingly, are no longer consolidated in the Company’s financial statements. So my understanding is that when one of the Lion Funds buy shares in BH, for legal purposes, this is not the same as BH owning those shares. I would certainly love to a hear a different legal theory, though. Thanks for clarifying my loose language. Structuring the BH share purchases in this way has allowed Biglari to control over 50% of BH shares outstanding, while also giving him the ability to sell BH shares easily if they were ever to become overvalued. For detractors, its a good example of what they consider poor practices by Biglari. As a supporter, I would argue that this allows Biglari to focus on delivering maximum shareholder returns, but I can see why detractors see it their way as well. Link to comment Share on other sites More sharing options...
NBL0303 Posted February 22, 2016 Share Posted February 22, 2016 Perhaps someone on this board could help me understand why Biglari is able to vote the BH shares in LFII, why such shares remain outstanding, and why Biglari is able to receive an incentive reallocation on gains of Company common stock (pg. 48 of the AR)? Indiana BCL § 23-1-27-2(a) says, (a) A corporation may acquire its own shares. Unless a resolution of the board of directors or the corporation's articles of incorporation provide otherwise, shares so acquired constitute authorized but unissued shares. I'm unable to find in the corporation's articles of incorporation a provision for repurchased common stock, so BH should be subject to this paragraph of IN BCL. Wouldn't "outstanding" shares have to first be issued? And if the shares are not legally outstanding, could they be voted? I understand that BH opted out of the Indiana Control Share Acquisitions Statute (§ 23-1-42-1) with the tender offer, but 23-1-27 would seem to apply. What am I missing? Good question. Firstly, there are numerous legal technicalities implicated by this whole arrangement. The simple answer is that even taken at face value without considering any other statutes, rules, regulations or policies, the statutory provision that you cite would allow for the voting arrangement by mode of a simple board resolution. Most public company's boards pass hundreds of resolutions a year and very few of them are in the public record. So you could imagine that the board via a two sentence resolution could allow those shares to be voted - at least according to the statute you referenced. But more directly, the shares have not been acquired by the company-- they were acquired by the Lion Fund I and Lion Fund II, which are private investment vehicles. Good point. Link to comment Share on other sites More sharing options...
CalvinL Posted February 22, 2016 Share Posted February 22, 2016 Is anyone planning to attend the shareholder meeting? Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted February 22, 2016 Share Posted February 22, 2016 Is anyone planning to attend the shareholder meeting? Is anyone still a shareholder??? Link to comment Share on other sites More sharing options...
Jurgis Posted February 22, 2016 Share Posted February 22, 2016 On one hand, maybe he'll have some Maxim models, pool and cigars. On another hand, maybe you'll be abused by Mr. Big for asking questions. So if you go, just shut up and have a cigar. Link to comment Share on other sites More sharing options...
awindenberger Posted February 22, 2016 Share Posted February 22, 2016 Is anyone planning to attend the shareholder meeting? I'm planning to go. Link to comment Share on other sites More sharing options...
NBL0303 Posted February 22, 2016 Share Posted February 22, 2016 Is anyone planning to attend the shareholder meeting? Is anyone still a shareholder??? I don't think there any shareholders left other than Biglari himself. Link to comment Share on other sites More sharing options...
OracleofCarolina Posted February 22, 2016 Share Posted February 22, 2016 anyone notice that Biglari Capital received a bonus from Lion Fund of $23,000 for 2015? I was thinking he would get ZERO since we saw the Lion Fund letter and he was negative 7% for 2015. So am I wrong, but I guess Lion Fund 1 and 2 are looked at seperately for the incentive fee. Is it possible the smaller Lion Fund 1, which holds no CBRL eeked out a postive year and Lion Fund 2 was negative ?? Link to comment Share on other sites More sharing options...
awindenberger Posted February 22, 2016 Share Posted February 22, 2016 anyone notice that Biglari Capital received a bonus from Lion Fund of $23,000 for 2015? I was thinking he would get ZERO since we saw the Lion Fund letter and he was negative 7% for 2015. So am I wrong, but I guess Lion Fund 1 and 2 are looked at seperately for the incentive fee. Is it possible the smaller Lion Fund 1, which holds no CBRL eeked out a postive year and Lion Fund 2 was negative ?? I believe Biglari's incentive fees for each fund are calculated separately. Any chance you could share the Lion Fund Letter? Link to comment Share on other sites More sharing options...
OracleofCarolina Posted February 23, 2016 Share Posted February 23, 2016 opps, I was looking at the 2014 letter(which was posted on here earlier and was linked in the Forbes article). He was -7 in 2014..I am not sure what he was for 2015...my bad I guess the Lion Fund letter mainly applies to the non-CBRL holdings like BH,CAW, VRX, AXAS since CBRL is held in Lion Fund II. Sorry for the rambling Link to comment Share on other sites More sharing options...
kh812000 Posted February 23, 2016 Share Posted February 23, 2016 Doesnt the 10k imply -12 to - 13% for 2015? Summarized financial information for The Lion Fund, L.P. and The Lion Fund II, L.P. is presented below. Lion Fund Lion Fund II Total assets as of December 31, 2015 ................................................................................ $ 165,996 $ 819,323 Total liabilities as of December 31, 2015 .......................................................................... $ 409 $ 141,274 Revenue for the year ended December 31, 2015 .............................................................. $ (24,101) $ (100,357) Earnings for the year ended December 31, 2015 .............................................................. $ (24,247) $ (103,096) Biglari Holdings’ Ownership Interest .............................................................................. 60.9% 93.5% Link to comment Share on other sites More sharing options...
hillfronter83 Posted March 1, 2016 Share Posted March 1, 2016 From the 10k, as of 12/31/2015, the fair value in investment partnership was $734.7m, the net would be $471.7 after subtracting BH stock held in partnership of $263m. However, the CBRL holding is about 4.74 million shares with market value of more than $600m. What am I missing? Link to comment Share on other sites More sharing options...
BTShine Posted March 1, 2016 Share Posted March 1, 2016 Steak n Shake worth somewhere between $250 million and $800 million (depending upon who you ask :). Just kidding (but that's true). To answer the question I think you're asking, which is "why does the stock sell so cheaply?" the stock sells very cheaply compared to it's assets because of the 'Biglari Discount.' Many think the benefit of these assets may not inure to the shareholders. Many see Sardar Biglari as standing between the shareholders and the assets, so they don't find the stock attractive even though there is clearly massive value (relative to the market cap) as you have shown us. Link to comment Share on other sites More sharing options...
hillfronter83 Posted March 1, 2016 Share Posted March 1, 2016 Steak n Shake worth somewhere between $250 million and $800 million (depending upon who you ask :). Just kidding (but that's true). To answer the question I think you're asking, which is "why does the stock sell so cheaply?" the stock sells very cheaply compared to it's assets because of the 'Biglari Discount.' Many think the benefit of these assets may not inure to the shareholders. Many see Sardar Biglari as standing between the shareholders and the assets, so they don't find the stock attractive even though there is clearly massive value (relative to the market cap) as you have shown us. I understand the "Biglari discount" and the rational behind it. I was trying to figure out the fair value of the BH's investments in the Lion Partnerships. The 10k seems to indicating fair value of about $471m while the CBRL holding alone (about $600m) is more than that. So I'm confused about the 10k. Thanks for your response! Link to comment Share on other sites More sharing options...
BTShine Posted March 1, 2016 Share Posted March 1, 2016 They have debt secured by 1.25 million shares (via options collar) of CBRL, which could offset some of the value of their CBRL stake. Does that help? The debt was for about $180 million if I remember right. Link to comment Share on other sites More sharing options...
hillfronter83 Posted March 1, 2016 Share Posted March 1, 2016 They have debt secured by 1.25 million shares (via options collar) of CBRL, which could offset some of the value of their CBRL stake. Does that help? The debt was for about $180 million if I remember right. I helps. I'll try to dig out more information. Thanks again. Link to comment Share on other sites More sharing options...
wabuffo Posted March 1, 2016 Share Posted March 1, 2016 I understand the "Biglari discount" and the rational behind it. I was trying to figure out the fair value of the BH's investments in the Lion Partnerships. The 10k seems to indicating fair value of about $471m while the CBRL holding alone (about $600m) is more than that. So I'm confused about the 10k. Thanks for your response! The CBRL stake is held in the Lion Fund II according to the Biglari Capital 13F. (use column 7 - anything with 1,2 as 'manager' is Lion Fund I, anything with 1,3 is Lion Fund II. If you add up the holdings for Lion Fund II (Air T, Insignia, CBRL and 616,312 sh of BH) according to the 13F - you get to a fair value of holdings of $817m. According to the 10-K, total assets for Lion Fund II = $819m. Close enough and the difference might be cash & cash equivalents held in the Lion Fund II, I think. http://www.sec.gov/Archives/edgar/data/1334429/000092189516003415/xslForm13F_X01/infotable.xml wabuffo Link to comment Share on other sites More sharing options...
NBL0303 Posted March 1, 2016 Share Posted March 1, 2016 They have debt secured by 1.25 million shares (via options collar) of CBRL, which could offset some of the value of their CBRL stake. Does that help? The debt was for about $180 million if I remember right. I helps. I'll try to dig out more information. Thanks again. To add a little color to this point, the liability associated with those 1.25 million Cracker Barrel shares is a Prepaid Variable Sales Forward Contract under which BH (or TLF II) received $135 million in February 2015. BH/TLF II will have to pay for those 1.25 million shares at a price collared at $131.32 per share and $157.584 per share, so a total payment of between $164 million and $197 million in September 2017. Alternatively, BH/TLF II can pay nothing and instead tender the 1.25 million shares to JP Morgan. Link to comment Share on other sites More sharing options...
kh812000 Posted March 4, 2016 Share Posted March 4, 2016 So Last 5 years of TLF were: TLF Growth of 1k SP500 Growth of 1k 2011 -6% 940 +2% 1020 2012 +9% 1025 +16% 1183 2013 +39% 1424 +32% 1561 2014 -7% 1324 +14% 1780 2015 -13% 1152 -1% 1760 Total Return +15% +76% So big underperformance for the last 5 years. Do these results suggest the takeout of SNS by Biglari has ruined his ability to successfully beat the market in his hedge fund? Its very difficult if not impossible for most to do 2 separate businesses well... Link to comment Share on other sites More sharing options...
bci23 Posted March 4, 2016 Share Posted March 4, 2016 maybe cause he is buying stuff for reasons other than valuation/price? Or maybe he isn't as good as people think? Link to comment Share on other sites More sharing options...
CalvinL Posted March 4, 2016 Share Posted March 4, 2016 So Last 5 years of TLF were: TLF Growth of 1k SP500 Growth of 1k 2015 -13% 870 -1% 990 2014 -7% 809 +14% 1129 2013 +39% 1125 +32% 1490 2012 +9% 1226 +16% 1728 2011 -6% 1152 +2% 1763 So big underperformance for the last 5 years. Do these results suggest the takeout of SNS by Biglari has ruined his ability to successfully beat the market in his hedge fund? Its very difficult if not impossible for most to do 2 separate businesses well... To judge his capital allocation performance fairly, cash generated from the original SNS that was being used to buy FG, Maxim, WS, and the "buyback" of BH should also be added to the calculation. As a turnaround, Biglari did a great job at SNS. What he did with the cash coming out of SNS seem to be on par with or 2-3% above S&P so far. If he simply put all cash towards an S&P index fund, he might have been able to work much less and achieved similar result. Of course there's no one way to properly valuate this, and I would argue that the past 5 years isn't a long enough runway to show his true performance. BH is no BRK and Biglari is no Buffett. I think Biglari is doing an average job as a hedge fund manager (a lot of hedgefunds can't even beat S&P after fees) People have been expecting above average performance from him and didn't get it so far - I guess that's also part of the reason for the "Biglari Discount". Link to comment Share on other sites More sharing options...
NBL0303 Posted March 4, 2016 Share Posted March 4, 2016 Thank you for posting. The numbers are for Lion Fund I correct? (As opposed to the Lion Fund II.) Just curious, how did you get these, I have not been able to find them previously? Link to comment Share on other sites More sharing options...
awindenberger Posted March 4, 2016 Share Posted March 4, 2016 These are definitely TLF I numbers, given that TLF II had huge gains in 2013 and 2014. Link to comment Share on other sites More sharing options...
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