BH - Biglari Holdings

[gfp]

Well it obviously looks odd at first glance since we know from his history that he is generally favorable on both Berkshire and Fastenal.  But if I had to guess, I would say that it is a quirk of the 13-F rules that only long options positions are to be reported - (no short positions in stocks or derivatives go on there, which is a stupid rule..)

 

So my guess would be that Sardar has decided to engage in "put spreads" in two stocks he knows well, and only half of the position is being reported.  But that's a guess and it could be a typo.  I doubt it.

 

 

** edit:  I should add that the 'value' column figures are off for derivatives because it is based on the number of shares underlying contracts times the price of the underlying (Berkshire must have ended the quarter right around 199.48), not the price of the put options he actually owns, and certainly not netted out against the put contracts I am assuming he is short against these.

 

Does anyone understand the 13F filed by Biglari Capital? Why would he own so many puts on Berkshire Hathaway?

[WideMoat]

Another interesting wrinkle is the size.  If the filing is correct, 640700 shares is 6407 contracts.  The only monthly put strike with an open interest that high would seem to be the May 200's, expiring in two days, which are currently in the money. 

 

If he owns those, it is not clear what he would have sold against it, since the other put strikes have such low open interest.

[OracleofCarolina]

a revised 13F was issued today with the puts removed. I suspect he actually sold some puts on BRK and did not need to report that and someone mistakenly filed them on the 13F

[given2invest]

Looks like Biglari is only purchasing the A shares.  He already has control cemented so I find that a bit odd.  I've never owned this and never will but enjoy observing.

[gfp]

Well he is certainly not going to purchase the B shares, although they were technically included in the recently concluded 10b5-1 trading plan that he just executed.  He was probably required to buy some shares because a portion of his corporate level bonus (granted because of the bump to book value resulting from the corporate tax cut) has to be put toward BH share purchases.  It seems that a 3000 share block ended up becoming available during his ~135ish shares per day purchase plan and the broker executing his plan was authorized to take that block as well.  So he purchased more than he was required to purchase.  I doubt you will ever see him buy B shares in the future, unless some large price discrepancy develops.  The voting rights are literally worthless to anyone but him, so I'm sure he can justify a premium on A vs B shares when writing his purchase plan instructions.

 

Looks like Biglari is only purchasing the A shares.  He already has control cemented so I find that a bit odd.  I've never owned this and never will but enjoy observing.

[Txvestor]

The more A shares he has the more he can dilute B shares with impunity as well.

[Foreign Tuffett]

The more A shares he has the more he can dilute B shares with impunity as well.

 

He already has voting control over the company. What difference does it make if he controls 70% of the vote vs 85% of the vote? B shares don't have any voting power whatsoever, so he can already issue them with impunity from a voting power perspective.

[gfp]

I think he would prefer to have personal voting control vs controlling the voting of the company owned shares.  He has beneficial ownership of enough A shares to control the company, but over time I think he would prefer to have actual ownership of enough A shares to at least exercise control.  If the Lion Fund sells BH shares, they will be B shares.  If the company issues shares, they will be B shares.  He will get additional personal ownership of A shares through his incentive reallocation if he can produce future investment management performance that earns it for him.  I'm sure he would like to earn those A shares out of the Lion Fund over time.  We'll see what he can do results wise.  He hasn't done much lately.

[pcm983]

I was wondering if anyone hear knows how Sardar got his start in activism. It seems fairly vague to me from what I can find - that he had an older business partner who helped get him started but I was just curious if anyone that has been following the story knows more of the details. Thanks in advance

[gfp]

Sanjeev might remember more, but I think he got started in activism with the tiny company Western Sizzlin', which had a few microcap value investors poking around at it.  I remember driving to one in Southern Illinois to check it out and passing.  Worked out for Sardar, though..

[OracleofCarolina]

Take a look at the “archived post”.

[Txvestor]

We'll see what he can do results wise.  He hasn't done much lately.

 

What about Biglari Cafe? Or Maxim's four year $50-million plus loss? Or the loss of 65% of his investment on Insignia? Or the loss of 75% of his investment on Valeant? Or Steak n Shake's two consecutive years of customer-traffic losses? Or Steak n Shake flipping from a positive net income to negative net income? 

 

He has done all of those things, or overseen them, lately.

 

You are right NBL. Its put up or shut up time and he has ridden the CBRL pony and its BV and tax basis shenenigans, as well as leveraged the company as far as its going to take him. Now he has to produce if he can or risk the enterprise. His cash cow SnS, is no longer that, and the fix for that is not nearly as easy as one might think. Sometimes brands just die and there is nothing one can do about it. None of the recent investments have had any positive outcome as you mentioned. So what is it worth? It depends, on what you think of Biglari's investment prowess. If you are a beleiver then $186/share is cheap. If you do not, then it is dead money at best and a dwindling investment at worst. It will for sure be an interesting story however. I stayed on the train as long as I could, but i can only afford to watch from the sidelines now.

[Foreign Tuffett]

Looks like there is some pockets of anxiety regarding Steak n Shake's debt

 

https://platform.reorg-research.com/public/article/NTcxMzkg

[OracleofCarolina]

Not surprised with the direction the restaurant business has been going...I hope Sardar gets this thing turnaround or it could get very ugly quickly.

[NBL0303]

Data from a number of different sources - other companies, credit card data, and a few other places - suggest to me at least that Steak n Shake probably had a very, very difficult quarter. It will be interesting to see how bad it was.

[JayGatsby]

Data from a number of different sources - other companies, credit card data, and a few other places - suggest to me at least that Steak n Shake probably had a very, very difficult quarter.

Not sure where you're getting the data, but there's been a few legal cases that credit card data is insider information. I think usually it's been someone who works at the credit card company that starts trading on the info.

[NBL0303]

Data from a number of different sources - other companies, credit card data, and a few other places - suggest to me at least that Steak n Shake probably had a very, very difficult quarter.

Not sure where you're getting the data, but there's been a few legal cases that credit card data is insider information. I think usually it's been someone who works at the credit card company that starts trading on the info.

 

Yeah I should have been more clear - I had read that credit card data suggests that consumers are spending less at restaurants. It does not relate to the dubious tactics associated with companies that try to buy credit card data and sell it to institutions to figure out what specific stores people are spending money at and to figure out sales trends at specific stores based on specific credit card spending at those stores. I've never seen that data, but I've always doubt that it would work for these people that think they are being clever because there would be so much noise in that data - that it would be easy to draw false conclusions. But court cases suggest that people do do that or try to.

 

The main reason I think this quarter was tough for Steak n Shake is because of the level of closures, some of the comments from a franchisee in a court case, and other franchisee level comments. There are obviously variability between franchisee performance and the system as a whole, but when enough franchisees are closing or saying that they are not profitable, it seems like a trend.

[Txvestor]

It seems to me SteaknShake is a dying brand. It ironically got a new lease on life during the great recession when the price conscious customer gravitated to them for the value proposition that the prices offered, but I don't beleive they were ever enamored with the brand in the way say a Starbucks customer would be. Now with the economy in gear and the customer arguably feeling a little more confident on one hand and the inflationary pressures starting to percolate, the going has got significantly tougher for Sardar.

The SteaknShake near where I live has a drive through and is in a dense area of shops/traffic, and there is an outlet mall right across the road from it. There are easily 30+ Fast casual/Quick service eating options within a mile of this establishment. I almost never see a 2nd car in line. The parking lot is usually quite empty and they are often the least busy eatery in the area. I know because my work takes me across that street sometimes multiple times in a day and at varying times(although usually not at evening/night). I cannot imagine that it is profitable, and I cannot imagine Sardar doesn't know about it since it is within 100 miles of the headquarters. I know this is anecdotal, but I can imagine atleast 10 franchises that would do better than SnS in that exact location.

I would be quite terrified if I was a bondholder frankly. All more smoke and mirrors.

[OracleofCarolina]

Same store sales down 3.4% for the 2nd quarter and customer traffic down 6.4% for Steak-N-Shake.

 

Seems like their sales are trending with Sears same store sales...ouch!

 

Bright spots continue to be 1st Guard and franchising.....and Maxim eeked out a profit??

 

Would be interesting to see how "Biglari Cafe" is doing?????

[Parsad]

Same store sales down 3.4% for the 2nd quarter and customer traffic down 6.4% for Steak-N-Shake.

 

Seems like their sales are trending with Sears same store sales...ouch!

 

Bright spots continue to be 1st Guard and franchising.....and Maxim eeked out a profit??

 

Would be interesting to see how "Biglari Cafe" is doing?????

 

He can sell the Cracker Barrel stake and pay off all of the debt...so I think the bondholders are overreacting.  That being said, my concern always was that he would over-leverage the business at some point...this really should be essentially a debt-free business based upon where they had gotten it after Sardar and his team turned it around.  But his desire to get rich as quick as possible has actually added a fair amount of risk to the holding company and alot of SNS' cash flow is now going towards interest payments.  What happens if we have another market crash and Cracker Barrel stock drops over 50%?  Cheers!

[NBL0303]

 

He can sell the Cracker Barrel stake and pay off all of the debt...so I think the bondholders are overreacting.  That being said, my concern always was that he would over-leverage the business at some point...this really should be essentially a debt-free business based upon where they had gotten it after Sardar and his team turned it around.  But his desire to get rich as quick as possible has actually added a fair amount of risk to the holding company and alot of SNS' cash flow is now going towards interest payments.  What happens if we have another market crash and Cracker Barrel stock drops over 50%?  Cheers!

 

Without the debt early on there wouldn't be the Cracker Barrel - so the debt did create a tremendous amount of value up to this point. But he could have certainly deleveraged it over the last few years and he could do that now.

[Txvestor]

Indeed leverage which created gains via CBRL, a large chunk of which he appropriated to himself. Now those whose capital was re-allocated will hold the bag if there is a downside scenario.

Ironically CBRL whom he tried to school is the actual reliable cash cow here. The dividend is a more reliable source of income than SnS frankly. I am not at all convinced the SnS brand is viable. If in time he concludes the same, it is not beyond him to throw that under the bus and live off the CBRL dividend, issue shares to raise capital and rebuild with the other subsidiaries and the CBRL stake. So while he could sell CBRL, it is not clear to me SnS is worth anything, hence maybe not worth saving?

[Parsad]

Indeed leverage which created gains via CBRL, a large chunk of which he appropriated to himself. Now those whose capital was re-allocated will hold the bag if there is a downside scenario.

Ironically CBRL whom he tried to school is the actual reliable cash cow here. The dividend is a more reliable source of income than SnS frankly. I am not at all convinced the SnS brand is viable. If in time he concludes the same, it is not beyond him to throw that under the bus and live off the CBRL dividend, issue shares to raise capital and rebuild with the other subsidiaries and the CBRL stake. So while he could sell CBRL, it is not clear to me SnS is worth anything, hence maybe not worth saving?

 

SNS brand is terrific!  Anyone who grew up eating Steak'n Shake burgers, has a real affinity for them...almost as strong as In & Out.  The food and brand are good.  But Sardar has made some mis-steps with the chain...adding the Biglari signature being one of them...alienating some franchisees another...ramming forced pricing down franchisee throats another...leveraging up the SNS cash cow business with debt...originally simplified the menu, but then made it to large and complex again...focusing on regions that have no affinity for the SNS brand (Cannes, Saudi Arabia, etc).  It's really an iconic brand in its core regions and it should quietly grow outwardly from there...exactly how In & Out or Sees dominated California before expanding.  Cheers!

[Spekulatius]

Same store sales down 3.4% for the 2nd quarter and customer traffic down 6.4% for Steak-N-Shake.

 

Seems like their sales are trending with Sears same store sales...ouch!

 

Bright spots continue to be 1st Guard and franchising.....and Maxim eeked out a profit??

 

Would be interesting to see how "Biglari Cafe" is doing?????

 

He can sell the Cracker Barrel stake and pay off all of the debt...so I think the bondholders are overreacting.  That being said, my concern always was that he would over-leverage the business at some point...this really should be essentially a debt-free business based upon where they had gotten it after Sardar and his team turned it around.  But his desire to get rich as quick as possible has actually added a fair amount of risk to the holding company and alot of SNS' cash flow is now going towards interest payments.  What happens if we have another market crash and Cracker Barrel stock drops over 50%?  Cheers!

 

The debt at SNS is non-recourse and CBRL is held at the holding. I think he will let SNS go, because I don’t think it is worth more than the debt right now. Sardar also could squeeze bond holders in a restructuring and inject equity in it to keep it viable.

[NBL0303]

He has complete control now - looking for more Biglari Cafes.

 

 

He has had complete control for over three years. I doubt you will see another Biglari Cafe per se, notably because Sardar said, "This will be the only one." You may and probably will see other vanity projects though.