BH - Biglari Holdings

[Txvestor]

While Txvestor and the others that hate Sardar are probably right about many of their points, they are misunderstanding today's price action.

 

Don’t hate too many things NBL. Yet objectively lookong at Sardar’s actions last few years

means one would be hard oressed to draw a different conclusion than that he sorely lacks

integrity.

Care to explain the price action then?

 

[txvalue]

I think NBL was saying that because of the split between A and B shares economically the price was going to be driven down on the B shares. So much of today's drop is a function of the dual listing rather than just people selling the stock. The B shares get a 1/5 economic interest of the A shares.

[racemize]

Perhaps I'm misunderstanding the split, but isn't it just that there is a new A share for every 10 B shares, so effectively a 10% dilution (the newly issued A shares)?

 

I would expect B shares to trade 10% lower based on the split + discount for non-voting presumably.

 

I would say you are misunderstanding it but that is a source of some dispute between investors - as to how to mathematically think about the split.  My partner talked to the person who is responsible for this stock for a large institutional holder of it and they actually didn't even understand the terms of the split even though they own quite a bit of it.

 

Yeah, I deleted that post, as the short description that they provided didn't quite work.

 

There were 2,500,000 shares.

 

Now there are 500,000 A shares having 1 vote and

10,000,000 B shares having 1/5th of the economic interest and no votes.

 

So, the value needs to be divided according to that math.

[TheValueDude]

Perhaps I'm misunderstanding the split, but isn't it just that there is a new A share for every 10 B shares, so effectively a 10% dilution (the newly issued A shares)?

 

I would expect B shares to trade 10% lower based on the split + discount for non-voting presumably.

 

I would say you are misunderstanding it but that is a source of some dispute between investors - as to how to mathematically think about the split.  My partner talked to the person who is responsible for this stock for a large institutional holder of it and they actually didn't even understand the terms of the split even though they own quite a bit of it.

 

Yeah, I deleted that post, as the short description that they provided didn't quite work.

 

There were 2,500,000 shares.

 

Now there are 500,000 A shares having 1 vote and

10,000,000 B shares having 1/5th of the economic interest and no votes.

 

So, the value needs to be divided according to that math.

 

Those are the authorized shares, not necessarily the outstanding shares, no?

 

Item 2 of the vote was to allow an increase in authorized shares.

[racemize]

Perhaps I'm misunderstanding the split, but isn't it just that there is a new A share for every 10 B shares, so effectively a 10% dilution (the newly issued A shares)?

 

I would expect B shares to trade 10% lower based on the split + discount for non-voting presumably.

 

I would say you are misunderstanding it but that is a source of some dispute between investors - as to how to mathematically think about the split.  My partner talked to the person who is responsible for this stock for a large institutional holder of it and they actually didn't even understand the terms of the split even though they own quite a bit of it.

 

Yeah, I deleted that post, as the short description that they provided didn't quite work.

 

There were 2,500,000 shares.

 

Now there are 500,000 A shares having 1 vote and

10,000,000 B shares having 1/5th of the economic interest and no votes.

 

So, the value needs to be divided according to that math.

 

Those are the authorized shares, not necessarily the outstanding shares, no?

 

Item 2 of the vote was to allow an increase in authorized shares.

 

Yes, that's the authorized, the actual shares were 2.067 million

[Txvestor]

While Txvestor and the others that hate Sardar are probably right about many of their points, they are misunderstanding today's price action.

 

Don’t hate too many things NBL. Yet objectively lookong at Sardar’s actions last few years

means one would be hard oressed to draw a different conclusion than that he sorely lacks

integrity.

Care to explain the price action then?

 

I am actually not disagreeing with you on substance, but in your eagerness to see the doom and destruction of Biglari Holdings - you have misunderstood what is happening today.  You have you have probably seen on a public stock website the publicly quote price of "BH" going down - but it is not actually a price decline.  All I'm saying is you don't understand what is happening today, not that you don't understand what is happening generally with this company.

I thought perhaps you had some more insightful information on the valuation of the enterprise. 

That the price decline today is largely an adjustment for the dual class restructuring is obvious.

Noone is hoping for the destruction of anything here. Some of us are just observing the gullibility

of the loyal shareholder class with intrigue and wondering what is their pain threshold while in the throes of a lions grip. Its genuinely like a gripping thriller.

[racemize]

I believe the math is:

 

closing price of $342.26, outstanding shares of 2,067,613 = market cap of $707.661 million;

 

After the split, there will be:

206,761 A shares and

2,067,613 B shares.  B shares are worth 1/5 of A shares, total effective outstanding economic A shares are:

 

206,761+2,067,613/5 = 620,284 shares -> value per A share of $1,140.86

Then B shares would be worth $1,140.86/5 = $228.17

 

Checking the math: 206,761*$1,140.86 + 2,067,613*$228.17 = $707 million

 

 

[Txvestor]

 

Some of us are just observing the gullibility of the loyal shareholder class with intrigue and wondering what is their pain threshold while in the throes of a lions grip.

 

You are obviously very confident in your belief that there is shareholder pain ahead for this company - so are you shorting the company?  I realize right now it is probably not possible to get a borrow on it - but most of the time you can short it through one modality or another.  So have you been shorting it or do you plan on shorting it?  If not, why not - given your confidence level?

 

More pertinently, are you doubling your position?

[John Hjorth]

This is entertaining. Is it worth it, gents? - Variant perceptions is all CoBF is about.

[bobozou]

NBL0303 - fwiw, I'm sympathetic to how rationally you are approaching this position (separating the value of the company/stock, and the risk of Biglari... at some point ANYTHING can be an attractive buy)

 

That being said, do you feel like you are, more-likely-than-not, in a situation where the fiduciary is (far) MORE interested in shifting value from minority shareholders to themselves, rather than growing the pie (and taking an outsized portion of it)?

 

Without the impetus to act with even the veneer of respectability, behaviors can deteriorate still further, ever more rapidly...

 

I have no dog in this fight.

I find myself detesting the behavior of one/more of the actor(s) involved.

I don't want to influence your buy/sell decision, but am curious how you're quantifying the above possibility.

[gfp]

At first glance this math looks correct, although I have not checked it.  By your math the company was valued at a $707.6 million market cap yesterday and a $775 million market cap today (counting "treasury shares" held by BH in Lion Funds in both examples).

 

So today's big price drop is actually a 9.5% gain.

 

I believe the math is:

 

closing price of $342.26, outstanding shares of 2,067,613 = market cap of $707.661 million;

 

After the split, there will be:

206,761 A shares and

2,067,613 B shares.  B shares are worth 1/5 of A shares, total effective outstanding economic A shares are:

 

206,761+2,067,613/5 = 620,284 shares -> value per A share of $1,140.86

Then B shares would be worth $1,140.86/5 = $228.17

 

Checking the math: 206,761*$1,140.86 + 2,067,613*$228.17 = $707 million

[walt373]

BH longs from yesterday are sitting on a nice gain today. The trade was to buy into the forced selling by index funds.

 

With B shares trading at $245 and A shares at $1270, that's equivalent to $372 for the old shares. (245 + 1270 / 10 = 372)

 

Btw, DHX is being deleted today, worth watching into the close.

[hillfronter83]

What is everyone's view on the dual class share restructure?

 

It seems this will allow Biglari to buy back non voting shares without losing control of the company. Now net of shares held by Lion fund, the company is valued at $316m. To put this valuation in perspective, they hold 4.74m CBRL shares, which paid around $38.8m dividends last year.

[TheValueDude]

What is everyone's view on the dual class share restructure?

 

It seems this will allow Biglari to buy back non voting shares without losing control of the company. Now net of shares held by Lion fund, the company is valued at $316m. To put this valuation in perspective, they hold 4.74m CBRL shares, which paid around $38.8m dividends last year.

 

He has no intention of retiring the shares held by TLF.

[hillfronter83]

What is everyone's view on the dual class share restructure?

 

It seems this will allow Biglari to buy back non voting shares without losing control of the company. Now net of shares held by Lion fund, the company is valued at $316m. To put this valuation in perspective, they hold 4.74m CBRL shares, which paid around $38.8m dividends last year.

 

He has no intention of retiring the shares held by TLF.

 

Did he communicate this? What are the reasons for not retiring B shares in TLF now he has total control? It will certainly shrink AUM for TLF.

[TheValueDude]

What is everyone's view on the dual class share restructure?

 

It seems this will allow Biglari to buy back non voting shares without losing control of the company. Now net of shares held by Lion fund, the company is valued at $316m. To put this valuation in perspective, they hold 4.74m CBRL shares, which paid around $38.8m dividends last year.

 

He has no intention of retiring the shares held by TLF.

 

Did he communicate this? What are the reasons for not retiring B shares in TLF now he has total control? It will certainly shrink AUM for TLF.

 

My understanding is this was communicated at the annual meeting.

[Txvestor]

NBL,

Ah, so you are trading it around your assessment of its IV. That is different than making a bull case for the business with a long term hold horizon which you previously did.

I am perhaps not as sophisticated an investor as you are. I am long only, and never look on the short side. However to answer your question, would I short BH? No, and here is why, I consider Sardar a loose cannon, and the stock price of BH is entirely dependent on his whims now. Do I think this approach works out longer term, clearly no. However, for all I know he could find some way to boost the stock price tomorrow if he felt he could benefit in some way.

His main interest it appears to me is to shift economic value away from BH shareholders and to himself. He has undeniably done that last few years. So, could he do something to boost the stock price tomorrow. Absolutely! For example he could liquidate or in some way generate liquidity from his CBRL stake and use that to buy back BH stock via the LF. He certainly doen't need ideas from you or me, he is plenty resourceful.

He read the intelligent investor cover to cover, and can quote you page numbers, remember?

That is not an ideal short for me.

FWIW, I too did exit my small 2.5% position in the 420s about a month ago for reasons similar to yours, I also had a similar cost basis to yours, but painfully had held on for longer. In fact, for a long time, despite my skepticism, I kept looking for a reason(s) that I could increase my position size. I had many opportunities to trade in and out of it, but kept trying hard to take the long view. I now have no intention of reentering the name.

Under any ordinary circumstances, and with even a half decent and "far less superior capital allocator" this would easily be an $800 stock. But alas, it is what it is, and far from being an emotional decision, I think I am better off looking for opportunities elsewhere. In fact, I am already building a position in something in the restaurant space with far less drama! It doesn't however take away the intrigue factor for me. I hope you will forgive my occasional intrusion into this thread for the said purpose.

I suspect Sanjeev too based on his occasional posts suffers from the same affliction. Lol

Good luck with your position.

 

[TheValueDude]

As you said, Sardar has appropriated much of the created value to himself in the last few years - say $80 million or so in the last few years.  Yet, in that same time period he has paid about $360 million to former shareholders and all he received is their BH shares.  Unless, you think he is an unresourceful simpleton - you have to think that part of his plan is to make these BH shares valuable.  He may not succeed in that, but if he didn't plan that - then he siphoned off $360 million to third parties that he could have appropriated to himself.  Additionally, his incentive bonus is now nearly entirely dependent on Biglari Holdings' stock price (unless Cracker Barrel were to go way up).  I'm not actually predicting success for the enterprise - but I personally don't think you can confidently say the stock price will be worth far less/etc.  There is at least some possibility given the $360 million he has spent and his incentive bound up with BH's share price that he will take actions that cause BH's share price to rise.

 

+1

[kh812000]

I dont think its possible to retire TLF shares as TLF is a separate entity and has LP ownership stakes by others besides BH.  I would think the co is required to do a Tender for B shares to remain equitable to all holders?? 

 

You would think at these levels BH can & should do something vs. in the past when Sardar was handcuffed b/c he needed to keep TLF shares to maintain control... Its getting crazy nuts back to old lows (300ish equivalent of old BH).

 

 

What is everyone's view on the dual class share restructure?

 

It seems this will allow Biglari to buy back non voting shares without losing control of the company. Now net of shares held by Lion fund, the company is valued at $316m. To put this valuation in perspective, they hold 4.74m CBRL shares, which paid around $38.8m dividends last year.

 

He has no intention of retiring the shares held by TLF.

[Cevian]

The perspective not many people talk about is that of TLF investors. I haven't personally seen a LF letter for some time and wonder how they have fared.

 

Anyone know what the returns of TLF have been the past 5 years?

Can these investors redeem?

[gfp]

I don't know Lion Fund I offhand, but Lion Fund II, the larger fund, net of fees, is:

 

2017    -4%

2016    +41.8%

2015    -13.59%

2014  +40.21%

2013  +30.87%

 

 

 

The perspective not many people talk about is that of TLF investors. I haven't personally seen a LF letter for some time and wonder how they have fared.

 

Anyone know what the returns of TLF have been the past 5 years?

Can these investors redeem?

[Txvestor]

Interesting that LF2 investors have done far better in the aggregate than BH(aka bag holders) stock.

Sorry I couldn’t resist the dig. 

Perhaps thats more of a function of the CBRL(also held in the LF)stock performance than BH stock.

 

 

[gfp]

Well the largest investor in LFII is Biglari Holdings.  It started out being almost entirely CBRL, then BH shares were added heavily when there became a valuation disconnect.  In the future, the performance of LFII and any associated incentive reallocations to the GP will depend to a large degree on the market performance of the BH common shares.  Unless the makeup of the portfolio changes.

 

Interesting that LF2 investors have done fat betternin the aggregate than BH(aka bag holders) stock.

Perhaps thats morenof a function of the CBRL(also held in the LF)stock performance than BH stock.

 

[kh812000]

Yes thats correct.  TLF2 was mostly outperf of CBRL. TLF1 is mostly BH stock so obviously TLF1 got shafted vs TLF2 and tracks BH stock pretty closely... 

 

I guess key question is what is Sardar's plan now that he doesnt need to hold BH stock hostage anymore...

 

 

Well the largest investor in LFII is Biglari Holdings.  It started out being almost entirely CBRL, then BH shares were added heavily when there became a valuation disconnect.  In the future, the performance of LFII and any associated incentive reallocations to the GP will depend to a large degree on the market performance of the BH common shares.  Unless the makeup of the portfolio changes.

 

Interesting that LF2 investors have done fat betternin the aggregate than BH(aka bag holders) stock.

Perhaps thats morenof a function of the CBRL(also held in the LF)stock performance than BH stock.

 

[kh812000]

yes I have owned BH off and on.  Luckily did not own BH into this cliff...