BH - Biglari Holdings

[NBL0303]

Very sad!  What a great franchise and I can't believe they shuttered 60 locations...in Indianapolis, their core market!  It was running so well several years ago, when they had streamlined the menu, brought in a nominal offering of the $4 deals and franchisees were happy.  Then he took out so much debt, did everything to increase volume (but not profitability) and pissed off the franchisees.  Really sad...I loved this business!  Plundered it and killed what was a pure cash cow!  I hope he turns it around for the sake of the franchisees, employees and people who love SNS.  Cheers!

 

Just to be clear, I think it is more like 100 closures now, but most of them are not in Indianapolis. A few of them are, but the closures have been in many markets.

 

I think Steak n Shake may have been on borrowed time even a few years ago - it seemed okay coming out of the recession - but according to franchisees it was always a fragile demand.

 

I do think the one smart thing he did though is take out debt not backed by the company. He upstreamed cash, from that debt, and invested it - after a series of investments - putting it into Cracker Barrel. That is now the only channel with value. So if he hadn't done that - he would just be left with Steak n Shake's real estate. Instead, the real estate will be the creditors - but he has all of that other value outside of it.

 

For his own enrichment, that was probably the right call. I know, I know, all the enrichment has gone to him and not shareholders - but I'm just saying he is better off having taken the debt on, upstreaming it and investing it - than he would have been not doing that.

 

Some will say, he is taking advantage of the lenders - and maybe to a certain extent that is true. But on some level, that is what they were signing off on/underwriting - the credit risk related to Steak n Shake's business - and the deterioration of Steak n Shake is what is causing them heartburn - but that is the exact thing they were making a judgment on (along with the value of the real estate). Additionally, Steak n Shake is definitely going under - but the lenders already have perfected security interests in the company's real estate - so I do not believe they will be out most of the $180 million.

[shalab]

It was all about enriching himself, I remember he stopped the 401(k) at SnS for the employees to reduce cost and it never came back. The whole thing sounded very unethical to me but at that time there was a cheer leading squad on this very board calling him a messiah.

 

Even now, the large amount of 40 MM capex on milkshake patent will go to Biglari's pocket. He is using money from the parent for this. I am surprised no one else called it.

 

I am looking at more ways money will find its way to Biglari's account as the top most priority is to transfer money from shareholders to Biglari account

 

Very sad!  What a great franchise and I can't believe they shuttered 60 locations...in Indianapolis, their core market!  It was running so well several years ago, when they had streamlined the menu, brought in a nominal offering of the $4 deals and franchisees were happy.  Then he took out so much debt, did everything to increase volume (but not profitability) and pissed off the franchisees.  Really sad...I loved this business!  Plundered it and killed what was a pure cash cow!  I hope he turns it around for the sake of the franchisees, employees and people who love SNS.  Cheers!

 

Just to be clear, I think it is more like 100 closures now, but most of them are not in Indianapolis. A few of them are, but the closures have been in many markets.

 

I think Steak n Shake may have been on borrowed time even a few years ago - it seemed okay coming out of the recession - but according to franchisees it was always a fragile demand.

 

I do think the one smart thing he did though is take out debt not backed by the company. He upstreamed cash, from that debt, and invested it - after a series of investments - putting it into Cracker Barrel. That is now the only channel with value. So if he hadn't done that - he would just be left with Steak n Shake's real estate. Instead, the real estate will be the creditors - but he has all of that other value outside of it.

 

For his own enrichment, that was probably the right call. I know, I know, all the enrichment has gone to him and not shareholders - but I'm just saying he is better off having taken the debt on, upstreaming it and investing it - than he would have been not doing that.

 

Some will say, he is taking advantage of the lenders - and maybe to a certain extent that is true. But on some level, that is what they were signing off on/underwriting - the credit risk related to Steak n Shake's business - and the deterioration of Steak n Shake is what is causing them heartburn - but that is the exact thing they were making a judgment on (along with the value of the real estate). Additionally, Steak n Shake is definitely going under - but the lenders already have perfected security interests in the company's real estate - so I do not believe they will be out most of the $180 million.

[Txvestor]

Very sad!  What a great franchise and I can't believe they shuttered 60 locations...in Indianapolis, their core market!  It was running so well several years ago, when they had streamlined the menu, brought in a nominal offering of the $4 deals and franchisees were happy.  Then he took out so much debt, did everything to increase volume (but not profitability) and pissed off the franchisees.  Really sad...I loved this business!  Plundered it and killed what was a pure cash cow!  I hope he turns it around for the sake of the franchisees, employees and people who love SNS.  Cheers!

 

Just to be clear, I think it is more like 100 closures now, but most of them are not in Indianapolis. A few of them are, but the closures have been in many markets.

 

I think Steak n Shake may have been on borrowed time even a few years ago - it seemed okay coming out of the recession - but according to franchisees it was always a fragile demand.

 

I do think the one smart thing he did though is take out debt not backed by the company. He upstreamed cash, from that debt, and invested it - after a series of investments - putting it into Cracker Barrel. That is now the only channel with value. So if he hadn't done that - he would just be left with Steak n Shake's real estate. Instead, the real estate will be the creditors - but he has all of that other value outside of it.

 

For his own enrichment, that was probably the right call. I know, I know, all the enrichment has gone to him and not shareholders - but I'm just saying he is better off having taken the debt on, upstreaming it and investing it - than he would have been not doing that.

 

Some will say, he is taking advantage of the lenders - and maybe to a certain extent that is true. But on some level, that is what they were signing off on/underwriting - the credit risk related to Steak n Shake's business - and the deterioration of Steak n Shake is what is causing them heartburn - but that is the exact thing they were making a judgment on (along with the value of the real estate). Additionally, Steak n Shake is definitely going under - but the lenders already have perfected security interests in the company's real estate - so I do not believe they will be out most of the $180 million.

 

 

If he wanted to upstream money and always knew it was a marginal brand he could and should have sold it when he instead saddled it with debt. He wanted to try out the upside through franchising while protecting the downside by taking advantage of those buying the bonds. You could argue its buyer

beware, but in all sincerity, its more like anyone dealing with this character in any way beware! I wonder how the guy that sold his trucking insurance company feels right about now. I think he atleast got cash for his company. If there is any good that comes out of this character, it will be eventually exposing all the loopholes for self enrichment from shareholders out into the open.

[NBL0303]

I wonder how the guy that sold his trucking insurance company feels right about now. I think he atleast got cash for his company.

 

According to people that went to the annual meeting, that guy, Ed Campbell, apparently likes Sardar. He sat up front at the annual meeting and always smiled when Sardar mentioned him and he told people before and after the meeting that he was very happy with being a part of Biglari Holdings.

 

But Sardar pays him well, gives him autonomy and lavishes praise on him publicly - so from a self-interested point-of-view, why wouldn't Ed Campbell like him? I would be horrified if I sold a company I cared about to Biglari Holdings, but thats just me.

 

Sardar Biglari clearly thinks that he can lavish praise on Ed Campbell at the meeting and in the annual report, and then point to that relationship to future potential sellers of their business. Sardar, his brother and his father, maybe his wife and maybe Phil Cooley are probably the only people on the planet who don't realize that no one who cared about their business would sell it to Biglari Holdings. The only way he'll get a deal is with other unscrupulous people or if he is willing to wildly overpay for a business - or maybe some combination of the two.

[Parsad]

Very sad!  What a great franchise and I can't believe they shuttered 60 locations...in Indianapolis, their core market!  It was running so well several years ago, when they had streamlined the menu, brought in a nominal offering of the $4 deals and franchisees were happy.  Then he took out so much debt, did everything to increase volume (but not profitability) and pissed off the franchisees.  Really sad...I loved this business!  Plundered it and killed what was a pure cash cow!  I hope he turns it around for the sake of the franchisees, employees and people who love SNS.  Cheers!

 

Just to be clear, I think it is more like 100 closures now, but most of them are not in Indianapolis. A few of them are, but the closures have been in many markets.

 

I think Steak n Shake may have been on borrowed time even a few years ago - it seemed okay coming out of the recession - but according to franchisees it was always a fragile demand.

 

I do think the one smart thing he did though is take out debt not backed by the company. He upstreamed cash, from that debt, and invested it - after a series of investments - putting it into Cracker Barrel. That is now the only channel with value. So if he hadn't done that - he would just be left with Steak n Shake's real estate. Instead, the real estate will be the creditors - but he has all of that other value outside of it.

 

For his own enrichment, that was probably the right call. I know, I know, all the enrichment has gone to him and not shareholders - but I'm just saying he is better off having taken the debt on, upstreaming it and investing it - than he would have been not doing that.

 

Some will say, he is taking advantage of the lenders - and maybe to a certain extent that is true. But on some level, that is what they were signing off on/underwriting - the credit risk related to Steak n Shake's business - and the deterioration of Steak n Shake is what is causing them heartburn - but that is the exact thing they were making a judgment on (along with the value of the real estate). Additionally, Steak n Shake is definitely going under - but the lenders already have perfected security interests in the company's real estate - so I do not believe they will be out most of the $180 million.

 

 

If he wanted to upstream money and always knew it was a marginal brand he could and should have sold it when he instead saddled it with debt. He wanted to try out the upside through franchising while protecting the downside by taking advantage of those buying the bonds. You could argue its buyer

beware, but in all sincerity, its more like anyone dealing with this character in any way beware! I wonder how the guy that sold his trucking insurance company feels right about now. I think he atleast got cash for his company. If there is any good that comes out of this character, it will be eventually exposing all the loopholes for self enrichment from shareholders out into the open.

 

Yup, there was nothing wrong with the business.  The biggest problems they had were with franchisees not making enough money because he was pushing volume.  If your franchisees aren't making money, they are going to underperform and eventually shut down.  He took away regional products and pushed the volume discount meals.  He went from thinning the menu to enlarging it...that increases food costs, waste and reduces profitability.  When you are paying $20M a year in interest costs, from a business that made $35M a year and then drawing all remaining profitability to the top, your business will deteriorate.  And then you forgo advice from the people who got you there and increase expenditures in non-core, experimental areas, you open yourself up to risk, mistakes and failure. 

 

I'm the last one that should talk, because we stuck it out too long with Sequant Re, but we did get it right in other areas and there was nothing wrong at all with the Steak'n Shake business...if it had received the focus that it should have, it would be a billion dollar business today.  Sardar was on target for that!  He knows it and we all know it!  Cheers!

[shalab]

SnS ordered to pay 7.7m in overtime

 

https://www.restaurantbusinessonline.com/financing/steak-n-shake-ordered-pay-77m-unpaid-overtime

 

[Txvestor]

SnS ordered to pay 7.7m in overtime

 

https://www.restaurantbusinessonline.com/financing/steak-n-shake-ordered-pay-77m-unpaid-overtime

 

Just another nail in the coffin. Only the deluded fool SB will talk about 2 yr turnaround with milkshake machines invented by him. Total con artist. Chapter and verse of the intelligent investor huh. What a pathetic excuse for a human.

[Spekulatius]

 

I'm the last one that should talk, because we stuck it out too long with Sequant Re, but we did get it right in other areas and there was nothing wrong at all with the Steak'n Shake business...if it had received the focus that it should have, it would be a billion dollar business today.  Sardar was on target for that!  He knows it and we all know it!  Cheers!

 

Having an upstart business with an yet unproven business model fail compared to running an existing business with upward momentum in the ground are two entities rely different things and much more blame should be put on management in the latter situation than the former.

 

I read though the archives of this site (before I signed up) and while he was hailed as the second coming of Jesus, some of Sadar‘s character flaws were quite evident. This story here is the perfect example that ability (which I think is even questionable at this point) in combination with character flaws (narcissism, self absorbed and greedy) creates disastrous results. When Managements character is lacking, the rest really doesn’t matter.

[NBL0303]

I don't think Steak n Shake had a future at all, really. I've spoken with franchisees, former franchisees and the brand always had inherent limitations - it seems to me - and it just had a couple of good years due to external factors. So I think taking money out of it, keeping investment low, trying to franchise - those things made all the sense in the world.  Not refranchising stores when they were profitable and now pouring money into the brand via capex for improved processes (to improve speed of service) to "turn it around" - and spending money on this franchise partner program - I think these are the mistakes. Not accepting it for what it was and getting the money out of it while you could but without risking any further capital on it - I think that a major mistake caused by Sardar Biglari's fundamental weaknesses as a businessman and capital allocator.

[rkbabang]

Yup, there was nothing wrong with the business.  The biggest problems they had were with franchisees not making enough money because he was pushing volume.  If your franchisees aren't making money, they are going to underperform and eventually shut down.  He took away regional products and pushed the volume discount meals.  He went from thinning the menu to enlarging it...that increases food costs, waste and reduces profitability.  When you are paying $20M a year in interest costs, from a business that made $35M a year and then drawing all remaining profitability to the top, your business will deteriorate.  And then you forgo advice from the people who got you there and increase expenditures in non-core, experimental areas, you open yourself up to risk, mistakes and failure. 

 

I'm the last one that should talk, because we stuck it out too long with Sequant Re, but we did get it right in other areas and there was nothing wrong at all with the Steak'n Shake business...if it had received the focus that it should have, it would be a billion dollar business today.  Sardar was on target for that!  He knows it and we all know it!  Cheers!

 

I don't think you are factoring in the coming of the amazing new milkshake machines.  ;D

[NBL0303]

Yup, there was nothing wrong with the business.  The biggest problems they had were with franchisees not making enough money because he was pushing volume.  If your franchisees aren't making money, they are going to underperform and eventually shut down.  He took away regional products and pushed the volume discount meals.  He went from thinning the menu to enlarging it...that increases food costs, waste and reduces profitability.  When you are paying $20M a year in interest costs, from a business that made $35M a year and then drawing all remaining profitability to the top, your business will deteriorate.  And then you forgo advice from the people who got you there and increase expenditures in non-core, experimental areas, you open yourself up to risk, mistakes and failure. 

 

I'm the last one that should talk, because we stuck it out too long with Sequant Re, but we did get it right in other areas and there was nothing wrong at all with the Steak'n Shake business...if it had received the focus that it should have, it would be a billion dollar business today.  Sardar was on target for that!  He knows it and we all know it!  Cheers!

 

I don't think you are factoring in the coming of the amazing new milkshake machines.  ;D

 

Everyone's been saying that he is licensing the milkshake making technology to the company - that he personally will own the patent or something - to further enrich himself. Was anyone on this board at the meeting - did that come up - did he say that he personally would own the milkshake making patent?

[Parsad]

Yup, there was nothing wrong with the business.  The biggest problems they had were with franchisees not making enough money because he was pushing volume.  If your franchisees aren't making money, they are going to underperform and eventually shut down.  He took away regional products and pushed the volume discount meals.  He went from thinning the menu to enlarging it...that increases food costs, waste and reduces profitability.  When you are paying $20M a year in interest costs, from a business that made $35M a year and then drawing all remaining profitability to the top, your business will deteriorate.  And then you forgo advice from the people who got you there and increase expenditures in non-core, experimental areas, you open yourself up to risk, mistakes and failure. 

 

I'm the last one that should talk, because we stuck it out too long with Sequant Re, but we did get it right in other areas and there was nothing wrong at all with the Steak'n Shake business...if it had received the focus that it should have, it would be a billion dollar business today.  Sardar was on target for that!  He knows it and we all know it!  Cheers!

 

I don't think you are factoring in the coming of the amazing new milkshake machines.  ;D

 

Well Elon Musk was already redesigning the propulsion engine, solar panels and autonomous vehicles...what was left?  Milkshake machines!  :)  Cheers!

[NBL0303]

Wow - Steak n Shake and Sardar are going viral today...

 

https://www.vice.com/en_us/article/kzm7k9/steak-n-shake-ceo-says-ditching-cherries-in-milkshakes-would-save-dollar1-million-a-year

 

https://www.businessinsider.com/steak-n-shake-losses-spark-concerns-for-future-report-2019-5

 

https://www.cbsnews.com/news/steak-n-shake-milkshakes-ceo-says-no-cherries-atop-milkshakes-could-save-troubled-chain-1-million/

 

https://www.foxbusiness.com/features/steak-n-shake-ceo-change-milkshakes-could-save-1m

 

https://thetakeout.com/steak-shake-ceo-cherries-milkshakes-million-1834783217

 

https://www.delish.com/food-news/a27481442/steak-n-shake-lawsuits/

 

https://www.kmov.com/news/steak-n-shake-ceo-says-no-cherries-atop-milkshakes-could/article_6db87488-7739-11e9-bb87-2bd148705c07.html

 

https://www.yahoo.com/lifestyle/steak-n-shake-could-going-192600531.html

 

https://www.clickorlando.com/food/no-cherry-on-top-struggling-steak-n-shake-hopes-to-save-1-million

 

 

[Txvestor]

Wow - Steak n Shake and Sardar are going viral today...

 

https://www.vice.com/en_us/article/kzm7k9/steak-n-shake-ceo-says-ditching-cherries-in-milkshakes-would-save-dollar1-million-a-year

 

https://www.businessinsider.com/steak-n-shake-losses-spark-concerns-for-future-report-2019-5

 

https://www.cbsnews.com/news/steak-n-shake-milkshakes-ceo-says-no-cherries-atop-milkshakes-could-save-troubled-chain-1-million/

 

https://www.foxbusiness.com/features/steak-n-shake-ceo-change-milkshakes-could-save-1m

 

https://thetakeout.com/steak-shake-ceo-cherries-milkshakes-million-1834783217

 

https://www.delish.com/food-news/a27481442/steak-n-shake-lawsuits/

 

https://www.kmov.com/news/steak-n-shake-ceo-says-no-cherries-atop-milkshakes-could/article_6db87488-7739-11e9-bb87-2bd148705c07.html

 

https://www.yahoo.com/lifestyle/steak-n-shake-could-going-192600531.html

 

https://www.clickorlando.com/food/no-cherry-on-top-struggling-steak-n-shake-hopes-to-save-1-million

 

 

Lol. Couldn’t have happened to a nicer guy.

[NBL0303]

 

Lol. Couldn’t have happened to a nicer guy.

 

I actually don't really know if he is a nice guy or not, it is just about his public actions as a CEO to me.

 

One thing about this and how toxic Sardar's reputation has been for a long time - Sardar really just thinks it doesn't matter. I don't believe that is the case - because they want to be an acquirer and Sardar's reputation will greatly hinder their ability to do acquisitions - I mean who would want to sell their business to him unless he was paying a pretty penny? But in some sense Sardar is right - in the current time there is so much news and information thrown at people, no one will really remember except for us. Now it is a funny store for a few days, but this level of corporate malfeasance should really become infamous like Enron - yet, it is hard for almost anything to be remembered now. An ardent Trump supporter told me this early in his political life a few years ago - she said that the media and the left were coming after him so hard everyday with all manner of complaints, accusations, allegations, etc. that it kind of actually helps him with his core supporters in the sense that no specific allegation/issue against will ever stick because there are so many thrown out daily that it all just kind of blends. With the Sardar situation, yes his reputation is shot, but it barely matters now in a sense because everyone moves on from story to story so fast.

[given2invest]

Nobody...and I mean nobody...is taking BH stock as currency in an acquisition.  And why would Biglari want to issue stock at a 50% discount to NAV or whatever it is? 

 

There will be no capital raising and no stock deals.  This thing is a shell that will exist forever to enrich BH.  If he's lucky with a couple stock investments, it might go up!  Heh.

[NBL0303]

 

There will be no capital raising and no stock deals.  This thing is a shell that will exist forever to enrich BH.  If he's lucky with a couple stock investments, it might go up! 

 

His stock investments may not be based on luck. And that may be part of the problem, he could make bad investments that go down, like, say, Valeant. But bad or good, investments usually depend on more than luck.

[given2invest]

 

There will be no capital raising and no stock deals.  This thing is a shell that will exist forever to enrich BH.  If he's lucky with a couple stock investments, it might go up! 

 

His stock investments may not be based on luck. And that may be part of the problem, he could make bad investments that go down, like, say, Valeant. But bad or good, investments usually depend on more than luck.

 

Yah, that has nothing to do with what I'm talking about.  Simply saying the only way he's going to make money at BH is with stock picking.  There will be no M&A and no secondaries. 

 

The stock is uninvestable.

[NBL0303]

 

Yah, that has nothing to do with what I'm talking about.  Simply saying the only way he's going to make money at BH is with stock picking. 

 

 

I thought you were saying that stock picking is all luck. Many people believe it is - but on the Corner of Berkshire and Fairfax I would think most people here think otherwise. It may be better if it were based on luck, that may be better than having a delusional stock picker - which can provide worse odds than pure luck does.

[Txvestor]

Nobody...and I mean nobody...is taking BH stock as currency in an acquisition.  And why would Biglari want to issue stock at a 50% discount to NAV or whatever it is? 

 

There will be no capital raising and no stock deals.  This thing is a shell that will exist forever to enrich BH.  If he's lucky with a couple stock investments, it might go up!  Heh.

 

Why would he like to issue stock at “50% discount”? Well to enlarge the pie he can eat from!

Thats why it is caveat emptor.

[NBL0303]

 

Why would he like to issue stock at “50% discount”? Well to enlarge the pie he can eat from!

Thats why it is caveat emptor.

 

Indeed. Why would he not bet on himself, his company, their assets and his future investments in such a cheap way - meaning by buying the shares back - if you believe in any of that stuff, the shares would be a good investment - yet, he apparently said at the annual meeting he doesn't want to shrink the company to do that. That says a lot. At least he is honest about that.

[DTEJD1997]

Hey all:

 

The S&S that I go to in metro Detroit is one that closed down.

 

It has been closed down about 1 week.

 

If it does not re-open very soon, I think the odds get much higher that it will never re-open as a Steak & Shake.

 

I am going to suggest that it is the same for other closed locations.  The longer they are closed, the higher the odds they never re-open.

[TwoCitiesCapital]

Hey all:

 

The S&S that I go to in metro Detroit is one that closed down.

 

It has been closed down about 1 week.

 

If it does not re-open very soon, I think the odds get much higher that it will never re-open as a Steak & Shake.

 

I am going to suggest that it is the same for other closed locations.  The longer they are closed, the higher the odds they never re-open.

 

Agreed. There's 8 locations in the St Louis area that closed weeks ago to find franchisees. I don't expect most of them to reopen.

[given2invest]

He won't buyback stock because the stock and capital of the company is effectively "permanent capital" to him and he can eat the fees for decades to come.  He doesn't care about the NAV gap though he'd prefer if it didn't exist. 

 

It's not different than a BDC where the sponsor doesn't want to buyback stock at a discount.  It shrinks their fee base!

[NBL0303]

Hey all:

 

The S&S that I go to in metro Detroit is one that closed down.

 

It has been closed down about 1 week.

 

If it does not re-open very soon, I think the odds get much higher that it will never re-open as a Steak & Shake.

 

I am going to suggest that it is the same for other closed locations.  The longer they are closed, the higher the odds they never re-open.

 

Agreed. There's 8 locations in the St Louis area that closed weeks ago to find franchisees. I don't expect most of them to reopen.

 

Steak n Shake is done. None of these are re-opening ever, essentially everyone knows this except Sardar Biglari, Steak n Shake "consultants" his father Ken Biglari, his brother Shawn Biglari, his wife Rosa and his partner Phil Cooley.

 

There may be a few one-off re-openings as they experiment with format-changes/concept-ideas and franchise partners, but that is it. It is not coming back and I think most people know it, including most franchisees who are deeply concerned in many cases. The only question is how long this funeral takes.

 

Restaurant chains when they hit these inflection points where they are losing customers this quickly, it is just nearly impossible for them to come back. Profitable restaurant chains can weather a few bad years, and acute crisis that cost them customers for a time, but these business-model-death-spirals - it is just nearly impossible to pull out of. You lose customers; then you lose employees; this generates negative press and feelings in the community; you lose more customers; you have to make difficult cost trade-offs (which Sardar has tried to avoid with food quality - but its coming); this leads to even great employee dissatisfaction and turnover; the increased turnover increases both costs and turmoil and decreases quality of service; this drives more customers away. Now throw on top of all of this the onslaught of terrible national news about all of this - and franchisees are not going to want to open these and more franchises will close.

 

In the face of all of this, the franchise partner plan may have been a good one as originally conceived, but it will not work. These death spirals are too powerful.