BH - Biglari Holdings

[OracleofCarolina]

Here are some notes from the meeting last week

no presentation this year, about 80-100 folks in attendence, nice views from the St Regis meeting room on the 22nd floor & good chocolate chip cookies

 

- Steak N Shake has some issues. Their average drive-thru time is 8 minutes and the industry avg is 4 minutes. The milkshakes are labor intensive and take at least 2 minutes to make. Their labor costs are about 40% , where as the industry average is 30%. The two key components of a turnaround are the new "franchise" partners and new kitchen equipment. The SNS term loan matures in 2021 but they have time.  The cost to update locations is about 100k each, so $40 million. Hope to have 60-80 franchise partners by end of year. 153 locations are owned(land & building), so whats that worth? 160 million?

 

- 8.4 million to Lion Fund annually is working great for shareholders. The board has total visibility into the numbers and they are pleased.

- looking at deals all the time and pass on 99.9% of them. Would still love to own another insurance company and will keep looking. The FAT Brands loan is an example of how opportunistic they can be.

- Would be disappointed if Maxim did not make $2 million in profit this year

- Discount in stock price is extreme at this time but not inclined to unwind the business to buy back shares, they will take action eventually if it continues in 2-3 years. The stock is down for "technical "reason..i.e....getting dropped from the indices due to dual-class structure

- Apparently Sardar is looking at cashing some partners out at book value(for BH) instead of current market price as they are 85 years old and these are personal relationships. It only affects him so not much to say, this is for the unaffiliated partners in the Lion Fund I.

 

 

[OracleofCarolina]

Here are some notes from the meeting last week

 

- Steak N Shake has some issues. Their average drive-thru time is 8 minutes and the industry avg is 4 minutes. The milkshakes are labor intensive and take at least 2 minutes to make. Their labor costs are about 40% , where as the industry average is 30%. The two key components of a turnaround are the new "franchise" partners and new kitchen equipment. The SNS term loan matures in 2021 but they have time.  The cost to update locations is about 100k each, so $40 million. Hope to have 60-80 franchise partners by end of year. 153 locations are owned(land & building), so whats that worth? 160 million?

 

- 8.4 million to Lion Fund annually is working great for shareholders. The board has total visibility into the numbers and they are pleased.

- looking at deals all the time and pass on 99.9% of them. Would still love to own another insurance company and will keep looking. The FAT Brands loan is an example of how opportunistic they can be.

- Would be disappointed if Maxim did not make $2 million in profit this year

- Discount in stock price is extreme at this time but not inclined to unwind the business to buy back shares, they will take action eventually if it continues in 2-3 years. The stock is down for "technical "reason..i.e....getting dropped from the indices due to dual-class structure

- Apparently Sardar is looking at cashing some partners out at book value(for BH) instead of current market price as they are 85 years old and these are personal relationships. It only affects him so not much to say, this is for the unaffiliated partners in the Lion Fund I.

 

[NBL0303]

Hello all -- Someone sent me a blog post that a blogger made after attending the Biglari Holdings annual meeting. That somewhat describes the Biglari Annual meeting but kind of in a comical fashion. I have no idea who this is - but some of the questions he or she is quoting are questions that I wrote and sent with other people who asked them - while I was tending to a baby :) Anyway, not being at the meeting I don't know all of the specifics but I have been fully briefed by multiple people and have a fairly good feel for what was said at the meeting.

 

Here is the blogger's post, it is snarky and some of what they recount about the meeting is inaccurate according to people who briefed me, but it is hilarious and well-written despite the inaccuracies:

 

https://seekingalpha.com/instablog/50239042-valueseeker64/5299346-fyre-festival-capitalism

 

Some highlights from the meeting as described to me are below. The key points are that Steak n Shake is really struggling, it hasn't gotten any better and its future is very much in doubt. Steak n Shakes are going to continue to close, both company-owned units and freestanding franchise-units but they are doing well in France and on universities - but everywhere else they are struggling. They are not going to buy back shares. Here are other highlights:

 

-60 Steak n Shake closures so far in 2019, more are coming.

 

-Sardar was adamant that they are not going to do a share buyback for many years - a minimum of 2-3 years. He says they can earn more money by keeping it in cash and eventually investing it well.

 

-Steak n Shake lenders were evidently at the meeting and Sardar said something like "they are nervous." Sardar said the Steak n Shake debt is due in 2021 and they have to get Steak n Shake turned around by then. As the blogger wrote, Sardar apparently specifically said that Biglari Holdings will not guarantee the debt. It seems like maybe he was saying this at the lenders - but I'm just getting this from notes - not being there - that may or may not be the case.

 

-The key to the turnaround, as Sardar sees it, is the process improvements. In that blogger's post - he is almost pejoratively saying Sardar is inventing a milkshake machine - but it is more extensive than that - and it is all aimed at the idea of improving service times - and that is the main element of the turnaround - improving the order processing times so that it improves drive-through times. Sardar literally did say he is inventing and patenting a milkshake making process.

 

-Maxim could make $2 million this year or next year. He is glad he did the deal. It was not a mistake. Despite spending well over $40 million on it and now only six years later making potentially $2 million - with the potential for losing years at Maxim as Sardar said - yet, despite all that, it was still a good deal.

 

-Sardar and Phil, as that blogger captures, according to the people who told me about this - repeatedly laughed at or mocked shareholders for voting against them.

 

-Sardar made fun of one shareholder questioner and told this shareholder that he was displaying pathologies in his question that would lead him to transfer wealth to others in the stock market.

 

-His compensation is "generous to shareholders." That is an exact quote that that blogger got right.

 

-Based on piecing together many comments - it seems that the C.T. and SSS losses have continued to trend downward. It may be hard to tell because there were so many Steak n Shake's closed in the first quarter - that it may be hard to tell what is going on for investors for a few quarters - but the declines have continued basically.

 

-Sardar was asked a lot about his reputation and he said he has a great reputation. What the shareholders think or what people on this website think are not important. What is important is what serious people think and serious people think very highly of him. This is, apparently, an exact quote.

 

-Sardar said repeatedly the Steak n Shake turnaround will take a long time.

[Partner24]

OMG. The transcript and comments say it all. At one end of the spectrum of corporate governance, you have BRK, and at the other end of it, you have this.

[rkbabang]

What a train wreck!

 

"At a past annual meeting I said, quit bidding our share price up. And everyone laughed.” Then he leaned into the microphone, looked out at shareholders, who lost 58% of the value of their stock in 2018, and said, with delight: “Who’s laughing now?”"

 

[writser]

-Another fun/telling moment was when a shareholder was upset because they felt the shares were significantly undervalued and Sardar said something like, “Our shares have been overvalued in the past. At a past annual meeting I said, quit bidding our share price up. And everyone laughed.” Then he leaned into the microphone, looked out at shareholders, who lost 58% of the value of their stock in 2018, and said, with delight: “Who’s laughing now?”

 

I don't know whether that was actually said. Nor do I really care. Awesome article :) .

[stahleyp]

-Another fun/telling moment was when a shareholder was upset because they felt the shares were significantly undervalued and Sardar said something like, “Our shares have been overvalued in the past. At a past annual meeting I said, quit bidding our share price up. And everyone laughed.” Then he leaned into the microphone, looked out at shareholders, who lost 58% of the value of their stock in 2018, and said, with delight: “Who’s laughing now?”

 

I don't know whether that was actually said. Nor do I really care. Awesome article :) .

 

Part of me wants to buy a share just to attend next year. This is wild.

[rkbabang]

He's like a Hollywood villain in some bad low budget anti-Wall Street movie.

[TwoCitiesCapital]

-Another fun/telling moment was when a shareholder was upset because they felt the shares were significantly undervalued and Sardar said something like, “Our shares have been overvalued in the past. At a past annual meeting I said, quit bidding our share price up. And everyone laughed.” Then he leaned into the microphone, looked out at shareholders, who lost 58% of the value of their stock in 2018, and said, with delight: “Who’s laughing now?”

 

I don't know whether that was actually said. Nor do I really care. Awesome article :) .

 

Part of me wants to buy a share just to attend next year. This is wild.

 

Lol! Same! My guess is that's the embellished portion of the article, but honestly you can't tell.

[OracleofCarolina]

maybe the "www.enhancesteaknshake.com" website should be reactivated!!

[shalab]

One of the best posts ever - I read the blog and feel for the shareholders. Cooley earns his pay for $252,000/year by providing comic relief at these meetings - unbelievable!

 

Hello all -- Someone sent me a blog post that a blogger made after attending the Biglari Holdings annual meeting. That somewhat describes the Biglari Annual meeting but kind of in a comical fashion. I have no idea who this is - but some of the questions he or she is quoting are questions that I wrote and sent with other people who asked them - while I was tending to a baby :) Anyway, not being at the meeting I don't know all of the specifics but I have been fully briefed by multiple people and have a fairly good feel for what was said at the meeting.

 

Here is the blogger's post, it is snarky and some of what they recount about the meeting is inaccurate according to people who briefed me, but it is hilarious and well-written despite the inaccuracies:

 

https://seekingalpha.com/instablog/50239042-valueseeker64/5299346-fyre-festival-capitalism

 

Some highlights from the meeting as described to me are below. The key points are that Steak n Shake is really struggling, it hasn't gotten any better and its future is very much in doubt. Steak n Shakes are going to continue to close, both company-owned units and freestanding franchise-units but they are doing well in France and on universities - but everywhere else they are struggling. They are not going to buy back shares. Here are other highlights:

 

-60 Steak n Shake closures so far in 2019, more are coming.

 

-Sardar was adamant that they are not going to do a share buyback for many years - a minimum of 2-3 years. He says they can earn more money by keeping it in cash and eventually investing it well.

 

-Steak n Shake lenders were evidently at the meeting and Sardar said something like "they are nervous." Sardar said the Steak n Shake debt is due in 2021 and they have to get Steak n Shake turned around by then. As the blogger wrote, Sardar apparently specifically said that Biglari Holdings will not guarantee the debt. It seems like maybe he was saying this at the lenders - but I'm just getting this from notes - not being there - that may or may not be the case.

 

-The key to the turnaround, as Sardar sees it, is the process improvements. In that blogger's post - he is almost pejoratively saying Sardar is inventing a milkshake machine - but it is more extensive than that - and it is all aimed at the idea of improving service times - and that is the main element of the turnaround - improving the order processing times so that it improves drive-through times. Sardar literally did say he is inventing and patenting a milkshake making process.

 

-Maxim could make $2 million this year or next year. He is glad he did the deal. It was not a mistake. Despite spending well over $40 million on it and now only six years later making potentially $2 million - with the potential for losing years at Maxim as Sardar said - yet, despite all that, it was still a good deal.

 

-Sardar and Phil, as that blogger captures, according to the people who told me about this - repeatedly laughed at or mocked shareholders for voting against them.

 

-Sardar made fun of one shareholder questioner and told this shareholder that he was displaying pathologies in his question that would lead him to transfer wealth to others in the stock market.

 

-His compensation is "generous to shareholders." That is an exact quote that that blogger got right.

 

-Based on piecing together many comments - it seems that the C.T. and SSS losses have continued to trend downward. It may be hard to tell because there were so many Steak n Shake's closed in the first quarter - that it may be hard to tell what is going on for investors for a few quarters - but the declines have continued basically.

 

-Sardar was asked a lot about his reputation and he said he has a great reputation. What the shareholders think or what people on this website think are not important. What is important is what serious people think and serious people think very highly of him. This is, apparently, an exact quote.

 

-Sardar said repeatedly the Steak n Shake turnaround will take a long time.

[Cevian]

The interesting part is that, at the end of the article, the writer still says: "Disclosure: I am/we are long BH, BH-A."

 

Sunk Cost fallacy?

[Spekulatius]

The interesting part is that, at the end of the article, the writer still says: "Disclosure: I am/we are long BH, BH-A."

 

Sunk Cost fallacy?

 

Well, he has to own at least one share in order to attend the shareholders meeting. At the current quote of $135 it seems to be worth it.

[Ballinvarosig Investors]

What a train wreck!

 

"At a past annual meeting I said, quit bidding our share price up. And everyone laughed.” Then he leaned into the microphone, looked out at shareholders, who lost 58% of the value of their stock in 2018, and said, with delight: “Who’s laughing now?”"

That's incredible.

 

I am struggling to think of any CEO who has such naked contempt for their shareholders. The Greek fellow who runs Dryships comes close maybe.

[skanjete]

Maybe Sardar is trying to chase everyone out?

 

Once the share price is low enough and the discount high enough, he could make a low ball take out offer for the company?

[TwoCitiesCapital]

With the history of deference from shareholders already, methinks it will have to go much lower before they give up on him.

[Txvestor]

What a train wreck!

 

"At a past annual meeting I said, quit bidding our share price up. And everyone laughed.” Then he leaned into the microphone, looked out at shareholders, who lost 58% of the value of their stock in 2018, and said, with delight: “Who’s laughing now?”"

That's incredible.

 

I am struggling to think of any CEO who has such naked contempt for their shareholders. The Greek fellow who runs Dryships comes close maybe.

 

Well the truth is the shareholders have enabled it. And now its too late.

[NBL0303]

Earnings report today. I'm not sure people are too interested in Biglari 10-Qs these days, but I think it will be interesting given 60-plus closures of company-owned units during the quarter. That may help stem Steak n Shake's losses over the medium-term, because they were poor performing stores, but there are probably costs in the short-run to shutting them down. Coupled with continued SSS and CT declines, I bet that this quarter was a bloodbath for Steak n Shake. And we know that their investment partnership was down based on CBRL's 3/31 price (partly offset by BH's price going up in Q1). In any event, I expect it was a brutal quarter - as essentially all of them have been for a few years.

[Txvestor]

Earnings report today. I'm not sure people are too interested in Biglari 10-Qs these days, but I think it will be interesting given 60-plus closures of company-owned units during the quarter. That may help stem Steak n Shake's losses over the medium-term, because they were poor performing stores, but there are probably costs in the short-run to shutting them down. Coupled with continued SSS and CT declines, I bet that this quarter was a bloodbath for Steak n Shake. And we know that their investment partnership was down based on CBRL's 3/31 price (partly offset by BH's price going up in Q1). In any event, I expect it was a brutal quarter - as essentially all of them have been for a few years.

 

It won’t stop the creativity in siphoning assets and control to SB however.

That process continues unabated. NBL, are you still a shareholder?

[John Hjorth]

Earnings report today. I'm not sure people are too interested in Biglari 10-Qs these days, but ...

 

NBL0303,

 

If all other CoBF members are wired like me, agreed.

 

The whole proposition is interesting anyway.

 

During today, I've [silently] asked myself the question: "What will happen, if I ask my better half to spank me, if I promise to pay her USD 132.17?" [<- Todays  BH closing price] - I'm still not sure what that would bring to my life ... I'm however in no way willing to test it, simply because that kind of service does not have my interest in the first place.

 

Now, if I asked my significant other if she would spank me, if I paid her USD 132.17 plus commision, I'm pretty sure, she would start packing her stuff immediately, to leave me.

 

-So, just another example of, that brokers fees matters a lot.

 

- - - o 0 o - - -

 

For those of you considering buying a BH share to attend next BH AGM: You can get 1 - 2 good books for the same bucks!

[NBL0303]

Earnings report today. I'm not sure people are too interested in Biglari 10-Qs these days, but ...

 

NBL0303,

 

If all other CoBF members are wired like me, agreed.

 

The whole proposition is interesting anyway.

 

During today, I've [silently] asked myself the question: "What will happen, if I ask my better half to spank me, if I promise to pay her USD 132.17?" [<- Todays  BH closing price] - I'm still not sure what that would bring to my life ... I'm however in no way willing to test it, simply because that kind of service does not have my interest in the first place.

 

Now, if I asked my significant other if she would spank me, if I paid her USD 132.17 plus commision, I'm pretty sure, she would start packing her stuff immediately, to leave me.

 

-So, just another example of, that brokers fees matters a lot.

 

- - - o 0 o - - -

 

For those of you considering buying a BH share to attend next BH AGM: You can get 1 - 2 good books for the same bucks!

 

Sorry I got lost a little in the spanking analogy. I don't understand the point. Is it that you'd rather pay $132.17 to get spanked than buy a share of Biglari Holdings? Getting spanked is a negative in this illustration right? I'm genuinely confused because some people evidently do pay to get spanked for enjoyment. Also is there a point about the commission in this illustration? Sorry, just confused.

[John Hjorth]

... I'm genuinely confused because some people evidently do pay to get spanked for enjoyment.

 

NBL0303,

 

Basically, you got the point of mine: No need to buy a share and go [to the AGM]. You can get entertained for free [and without the fees & spanking].

 

- - - o 0 o - - -

 

Pretty interesting, that this can be going on for a listed company in USA, actually. I don't think that would be possible here in Denmark, actually [, based on local observations during many years].

[NBL0303]

... I'm genuinely confused because some people evidently do pay to get spanked for enjoyment.

 

NBL0303,

 

Basically, you got the point of mine: No need to buy a share and go [to the AGM]. You can get entertained for free [and without the fees & spanking].

 

- - - o 0 o - - -

 

Pretty interesting, that this can be going on for a listed company in USA, actually. I don't think that would be possible here in Denmark, actually [, based on local observations during many years].

 

Got it, thanks for explaining. Many people are surprised that this could occur in the U.S., with an NYSE listed company and under the vast scope of US corporate laws - yet happening it is.

[Txvestor]

... I'm genuinely confused because some people evidently do pay to get spanked for enjoyment.

 

NBL0303,

 

Basically, you got the point of mine: No need to buy a share and go [to the AGM]. You can get entertained for free [and without the fees & spanking].

 

- - - o 0 o - - -

 

Pretty interesting, that this can be going on for a listed company in USA, actually. I don't think that would be possible here in Denmark, actually [, based on local observations during many years].

 

Got it, thanks for explaining. Many people are surprised that this could occur in the U.S., with an NYSE listed company and under the vast scope of US corporate laws - yet happening it is.

 

I don’t think the corporate laws were written for scenarios where shareholders would drink the kool-aid and collectively jump off the cliff in honor of the value messiah. They voted for this.

How are laws to guard against that? 

[given2invest]

Wow I don't follow this story closely at all but Steak N Shake is a dumpster fire!  That Q1 loss...wowsers.  How much is it gonna burn this year???

 

Even backing out this 4.9M...it's ugly.

 

 

General and administrative expenses during the first quarter of 2019 were $17,101 or 9.8% of total revenues compared to expenses in the first quarter of 2018, which were $15,087 or 7.8% of total revenues.  General and administrative expenses increased during the first quarter of 2019 compared to 2018 primarily due to the accrual of legal expenses, namely a verdict in a case against Steak n Shake in the amount of $3,000.

 

 

 

Other expenses increased during the first quarter of 2019 due to asset impairments of $1,900.