BH - Biglari Holdings

[Parsad]

Looks like Fortress was trying to get control. Steak N Shake is suing Fortress.

It says on Bloomberg SNS paid the loan for $102 million to avert bk.

 

Sanjeev's price he sold at $120 was a great one. Even averting bk it isn't any higher.

 

Sardar paid a premium to get his own debt from Fortress...smart play by Fortress to acquire the debt...but let's see what the courts say.  I'm not sure BH has a real case here, but if they were in negotiations, Fortress may have received certain privileged information.  I'm sure they'll just come to some sort of settlement over time.  Cheers!

[5xEBITDA]

I'd be very surprised if Pete did something wrong here.

[OracleofCarolina]

it will be interesting to see how Sardar gathered up the $102 million to pay off the debt. Seems like we would have seen a filing if he sold some Cracker Barrel, maybe he did another pre-paid forward variable contract on the stock...maybe he found a financing partner??

[NBL0303]

Looks like Fortress was trying to get control. Steak N Shake is suing Fortress.

It says on Bloomberg SNS paid the loan for $102 million to avert bk.

 

Sanjeev's price he sold at $120 was a great one. Even averting bk it isn't any higher.

 

Sardar paid a premium to get his own debt from Fortress...smart play by Fortress to acquire the debt...but let's see what the courts say.  I'm not sure BH has a real case here, but if they were in negotiations, Fortress may have received certain privileged information.  I'm sure they'll just come to some sort of settlement over time.  Cheers!

 

Well they retired $153 million in debt for $102 million, so it wasn't a premium in that sense. The debt, as of the end of the third quarter, had an implied total market value of $89 million - so I guess you could say that they paid a slight premium to that. But really not very much debt traded that cheaply. In some sense they made an accounting gain of $50 million actually though more because they retired some of this original debt previously at a discount also. But of course the reason they got this "gain" is because of the mess that is Steak n Shake.

[ValueMaven]

or maybe he sold that all black Lambo....

[NBL0303]

it will be interesting to see how Sardar gathered up the $102 million to pay off the debt. Seems like we would have seen a filing if he sold some Cracker Barrel, maybe he did another pre-paid forward variable contract on the stock...maybe he found a financing partner??

 

After the Cracker Barrel sales a few years ago I think the Lion Fund II had over $100 million in cash sitting in it. They also had a $40 million gain from Tiffany's in the Lion Fund II and Fat Brands loan paid back/etc. So I think they had more than that amount of cash around. Also between 9/30 and 12/31 Lion Fund II sold $40 million or so of Berkshire. So they had a lot of cash, the question is did they use most of it on this debt retirement.

[ValueMaven]

talk about good money chasing after bad.  Couldnt think of a worse situation.  Selling Berkshire to buyback SnS debt...sad

[OracleofCarolina]

http://www.biglariholdings.com/financials/2020/Reports/Biglari%20Holdings%20Annual%20Report%202020.pdf

 

Friday's close was $585.54 for the A shares and $125.54 for the B shares, I get a market cap around $381 million

 

What do you get for $381 million?

 

Steak N Shake with no debt(worth 90 million lets say), Western Sizzlin, 1st Guard, Southern Pioneer, Southern Oil, Maxim, you would think all of those would be worth at least $275 million and then the Lion Fund minus the BH shares is about $419 million minus the taxes if he sold all of Cracker Barrel is about $375 million(this is 12/31 so worth even more now)

 

I am guessing he used the cash and securities at the corporate level to come up with the 102 million to pay off the debt

 

So 375 million + 275 million = 650 million, so about a 40% discount for corporate governance ,right??

[NBL0303]

http://www.biglariholdings.com/financials/2020/Reports/Biglari%20Holdings%20Annual%20Report%202020.pdf

 

Friday's close was $585.54 for the A shares and $125.54 for the B shares, I get a market cap around $381 million

 

What do you get for $381 million?

 

Steak N Shake with no debt(worth 90 million lets say), Western Sizzlin, 1st Guard, Southern Pioneer, Southern Oil, Maxim, you would think all of those would be worth at least $275 million and then the Lion Fund minus the BH shares is about $419 million minus the taxes if he sold all of Cracker Barrel is about $375 million(this is 12/31 so worth even more now)

 

I am guessing he used the cash and securities at the corporate level to come up with the 102 million to pay off the debt

 

So 375 million + 275 million = 650 million, so about a 40% discount for corporate governance ,right??

 

Agree with most of your thoughts - except you are using the market cap that includes all of the shares that Biglari Holdings owns in itself in the Lion Funds yet you are excluding the value of those share when you say "The Lion Fund minus the BH shares." There are two approaches to this, in my view, either one makes sense. One is to exclude the "self-owned BH shares" from the market cap and exclude their value from the value of BH/Lion Fund's investments. Or, to include all of those self-owned shares in the market cap and then also include them in the value of BH's investments.

 

The post above includes those shares in the market cap but excludes their value in the investments. I do not think that is consistent or an accurate view of this. The market cap, if you exclude those BH self-owned shares, is about half of the figure in your post.

 

[peridotcapital]

So no debt on the balance sheet anymore and guidance that SNS will make money in 2021... perhaps we are moving at a little faster pace to a situation where BH can report relatively consistent profits from operations, show regular earnings on a quarterly basis, and maybe be able to be valued on P/E for the first time.... ever? Given the dramatic discount, I wonder if such a scenario would be a catalyst for the stock over the next couple of years?

[OracleofCarolina]

http://www.biglariholdings.com/financials/2020/Reports/Biglari%20Holdings%20Annual%20Report%202020.pdf

 

Friday's close was $585.54 for the A shares and $125.54 for the B shares, I get a market cap around $381 million

 

What do you get for $381 million?

 

Steak N Shake with no debt(worth 90 million lets say), Western Sizzlin, 1st Guard, Southern Pioneer, Southern Oil, Maxim, you would think all of those would be worth at least $275 million and then the Lion Fund minus the BH shares is about $419 million minus the taxes if he sold all of Cracker Barrel is about $375 million(this is 12/31 so worth even more now)

 

I am guessing he used the cash and securities at the corporate level to come up with the 102 million to pay off the debt

 

So 375 million + 275 million = 650 million, so about a 40% discount for corporate governance ,right??

 

Agree with most of your thoughts - except you are using the market cap that includes all of the shares that Biglari Holdings owns in itself in the Lion Funds yet you are excluding the value of those share when you say "The Lion Fund minus the BH shares." There are two approaches to this, in my view, either one makes sense. One is to exclude the "self-owned BH shares" from the market cap and exclude their value from the value of BH/Lion Fund's investments. Or, to include all of those self-owned shares in the market cap and then also include them in the value of BH's investments.

 

The post above includes those shares in the market cap but excludes their value in the investments. I do not think that is consistent or an accurate view of this. The market cap, if you exclude those BH self-owned shares, is about half of the figure in your post.

 

ah yes, thanks for this, you are right , so this thing is even more discounted than I thought.

[wescobrk]

no one wanted it a week or so ago after the news was public SNS wouldn't be filing and now after his letter to shareholders it is up 11%.

 

[peridotcapital]

$60M of EBITDA from the operating businesses in 2020. Slap a meager 5x multiple on that and add the LP fair value net of deferred taxes as of 12/31 and you get something north of $270 per "B" share.  The current discount of >50% seems very excessive, even for Sardar.

[TwoCitiesCapital]

Forgive me if the below is a dumb question - I only periodically follow this as the perpetual discount has always tempted me and I've always chosen to stay far away.

 

But in prior arguments, the fact that none of the debt was recourse to BH was supposedly a positive.

 

And yet here we are with BH covering the debt of SNS to protect it from bankruptcy, and that's also supposed to be positive?

 

Do businesses like Maxim SNS which have lost money in recent years and a hedge fund that holds Cracker Barrell shares and BH shares deserve a 5x multiple of EBITDA - particularly when one of the largest contributors to that income/valuation/profit is the one that was just bailed out from bankruptcy?

 

I'm a sucker for buying assets at a discount to NAV, but am struggling to understand the positive spin on recent developments to want to swim in this pool. Would love thoughts to the contrary though.

[coc]

One thing I also regularly see missed in valuing BH are the massive corporate G&A expenses. $12M last year which was more than they earned on underwriting from all of the insurance companies. Don't forget to pay the piper when you value this thing. It's not going to be split up any time soon.

[gfp]

One thing I also regularly see missed in valuing BH are the massive corporate G&A expenses. $12M last year which was more than they earned on underwriting from all of the insurance companies. Don't forget to pay the piper when you value this thing. It's not going to be split up any time soon.

 

The company paid Biglari Enterprises $8.4 million in service fees during 2020, the same as in 2019...  And of course you NEED an organic farm in the Cote d'Azur to maintain the SnS brand.  Tomatoes and Strawberries man!

[OracleofCarolina]

One thing I also regularly see missed in valuing BH are the massive corporate G&A expenses. $12M last year which was more than they earned on underwriting from all of the insurance companies. Don't forget to pay the piper when you value this thing. It's not going to be split up any time soon.

 

The company paid Biglari Enterprises $8.4 million in service fees during 2020, the same as in 2019...  And of course you NEED an organic farm in the Cote d'Azur to maintain the SnS brand.  Tomatoes and Strawberries man!

He also received almost $1 million in incentive fees from the Lion Fund in 2020, plus his normal salary so cleared $10 million

If the BH stock really pops in 2021, he is going to get a massive incentive fee from the Lion Fund

[NBL0303]

Indeed. You certainly have to pay the piper with this one. As everyone knows. That is a major downside worthy of a significant discount or perhaps making it investable completely. With every investment, though, there is some kind of piper to pay. In the form of a high valuation or some such similar dynamic. With this one, Sardar's actions and compensation are so noxious to so many people that they can't even imagine investing. Those aspects of him stick out so viscerally to investors, especially value investors, especially value investors who were initially lured with the language of Buffett and partnership with shareholders.

 

On the other hand, while Sardar Biglari will make more money from the success of this enterprise than other shareholders, and is funding his lifestyle off of the company to some extent, he also has completely tied his own financial life to the shares of the company. He has never sold a share, has consistently purchased shares, and as he said apparently at a recent annual meeting - has nearly his entire net worth tied to the long-term share price of Biglari Holdings. That is a lot more than many public company CEOs can say. He has also had Biglari Holdings itself, through the Lion Funds, buy massive amounts of the stock back. This has even further tied his own future incentive payments to the share price of Biglari Holdings. So on one hand, an investor has to live with the $8.4 million in expenses for running the fund, plus $1 million salary, plus potentially large incentive payments. On the other hand, you do have a situation in which Sardar Biglari is massively incentivized for the price of Biglari Holdings shares to be worth more. Understanding both sides of that dynamic is interesting.

[AzCactus]

Indeed. You certainly have to pay the piper with this one. As everyone knows. That is a major downside worthy of a significant discount or perhaps making it investable completely. With every investment, though, there is some kind of piper to pay. In the form of a high valuation or some such similar dynamic. With this one, Sardar's actions and compensation are so noxious to so many people that they can't even imagine investing. Those aspects of him stick out so viscerally to investors, especially value investors, especially value investors who were initially lured with the language of Buffett and partnership with shareholders.

 

On the other hand, while Sardar Biglari will make more money from the success of this enterprise than other shareholders, and is funding his lifestyle off of the company to some extent, he also has completely tied his own financial life to the shares of the company. He has never sold a share, has consistently purchased shares, and as he said apparently at a recent annual meeting - has nearly his entire net worth tied to the long-term share price of Biglari Holdings. That is a lot more than many public company CEOs can say. He has also had Biglari Holdings itself, through the Lion Funds, buy massive amounts of the stock back. This has even further tied his own future incentive payments to the share price of Biglari Holdings. So on one hand, an investor has to live with the $8.4 million in expenses for running the fund, plus $1 million salary, plus potentially large incentive payments. On the other hand, you do have a situation in which Sardar Biglari is massively incentivized for the price of Biglari Holdings shares to be worth more. Understanding both sides of that dynamic is interesting.

 

The thing is for Sardar this is heads I win, tails I don't lose.  While you are right that he would probably prefer the share price to rise over time (what CEO wouldn't), he doesn't seem credible enough to say "nearly my entire net worth." As big of a looney tune as this guy is that could be 10%.  Furthermore, even if the stock performs poorly this guy gets filthy rich.  It's more fun buying good businesses than ones like this.  Good luck.

[NBL0303]

 

The thing is for Sardar this is heads I win, tails I don't lose.  While you are right that he would probably prefer the share price to rise over time (what CEO wouldn't), he doesn't seem credible enough to say "nearly my entire net worth." As big of a looney tune as this guy is that could be 10%.  Furthermore, even if the stock performs poorly this guy gets filthy rich.  It's more fun buying good businesses than ones like this.  Good luck.

 

Apart from the question of whether or not he is incentivized to make the share price of Biglari Holdings valuable, there are of course all sorts of questions though about his judgement, increased exposure to Steak n Shake, the discount the has to be applied for his incentive allocation payments he gets if the share price does soar, and as someone mentioned the valuation discount of the $8.4 million services contract plus the $900k salary even if he does not does get incentive payments because the share price of Biglari Holdings has gone up a lot. But on the question of incentives and whether he is financially bound up with the share price of Biglari Holdings - I think that he clearly is.

 

I guess this is what I think is interesting about it - he has spent a ton of his own money buying shares the last few years and has had the company itself buy multiple hundreds of millions worth of shares - something like $100 million of open market purchases AFTER he already acquired voting control via the large tender. Yes, he can have a comfortable lifestyle from funding it through the company - but I don't think he can get "filthy rich" if the stock of the company doesn't do well. Spending so much money on buying those shares ties himself to the company's stock price to a much greater degree. If he were only interested in making sure he was getting filthy rich even if the stock price went down and stayed down forever, then he would't have spent those hundreds of millions buying shares back - he would have kept in the company so he could swindle it.

 

I'm not arguing that makes this a good investment or even that he is not a crook or something - I'm just saying that is what makes this situation interesting. He is the ego-maniac who has set himself up with the company paying for his lifestyle. Yet, he has also bound himself to the share price of Biglari Holdings more than most management of public companies by far. He also has by far the most to gain from the share price of Biglari Holdings going up significantly. Even if he is a nefarious actor, probably the most straight-forward way for him to get the most amount of money is to try to get the share price of Biglari Holdings up significantly.

 

[coc]

Let me just emphasize one thing. Your interpretation of Sardar’s motive, intention, and skills are up you.

 

What you cannot argue is that the huge expenses he’s running through the holding company are irrelevant to valuing the business. You can’t just add up the insurance companies, the restaurants, and the stocks and divide by shares outstanding. You have to capitalize and subtract the corporate costs.

 

I think it’s fine to analyze BH optimistically, pessimistically, or in between.

[bizaro86]

While Biglari will get very rich if the share price rises, he will also get very rich via the eventually take-under if the share price continues to fall.

 

He's the natural buyer for every share at this point, because he can absolutely control the discount by his own actions.

[NBL0303]

 

What you cannot argue is that the huge expenses he’s running through the holding company are irrelevant to valuing the business. You can’t just add up the insurance companies, the restaurants, and the stocks and divide by shares outstanding. You have to capitalize and subtract the corporate costs.

 

 

Who is arguing that? There is not a single person on here who is not aware that these expenses and all of the other corporate governance issues are extremely relevant to the valuation of it and at best cause a substantial discount to the intrinsic value of the enterprise and at worst make the company uninvestable. If there is someone on this board who reads this that thinks that those expenses are not relevant to the valuation of the company - then please correct me and post something to that effect - I'd be interested in knowing why. I have never seen someone argue that.

 

The question is, is the company completely investable because of these expenses, the incentive agreement, the corporate governance issues, and the inability to trust management or is there some price for the company's shares/market cap that makes the company a worthwhile investment factoring in a large Biglari discount for all of these issues/expenses? Like Parsad last year bought shares evidently because he thought the price/value gap got too large and for him I guess it is not uninvestable at any price. For nearly everyone else, I surmise that they would not invest in Biglari Holdings at any perceived price/value gap.

[coc]

On the contrary, I've yet to see a single valuation on here that actually capitalized, then deducted the corporate expenses. I have heard vague references to "corporate governance" meaning they don't like Biglari's policies, personality, capital allocation, etc.

 

I agree that it is not "uninvestable" or whatever that means, nor have I argued it. I'm saying in at least one way, you can replace a vague notion about governance with some actual numbers. Then, if you think he's going to destroy further value (or create it), you can go on with your guessing.

 

Thanks.

[peridotcapital]

 

What you cannot argue is that the huge expenses he’s running through the holding company are irrelevant to valuing the business. You can’t just add up the insurance companies, the restaurants, and the stocks and divide by shares outstanding. You have to capitalize and subtract the corporate costs.

 

 

Who is arguing that? There is not a single person on here who is not aware that these expenses and all of the other corporate governance issues are not extremely relevant to the valuation of it and at best cause a substantial discount to the intrinsic value of the enterprise and at worst make the company uninvestable. If there is someone on this board who reads this that thinks that those expenses are not relevant to the valuation of the company - then please correct me and post something to that effect - I'd be interested in knowing why. I have never seen someone argue that.

 

The question is, is the company completely investable because of these expenses, the incentive agreement, the corporate governance issues, and the inability to trust management or is there some price for the company's shares/market cap that makes the company a worthwhile investment factoring in a large Biglari discount for all of these issues/expenses? Like Parsad last year bought shares evidently because he thought the price/value gap got too large and for him I guess it is not uninvestable at any price. For nearly everyone else, I surmise that they would not invest in Biglari Holdings at any perceived price/value gap.

 

To add on to this... consider that as of 12/31/20 the implied market value for BH's operating businesses (market cap less after-tax FMV of LP interests) was negative $200 million. Even with Sardar's compensation and the corporate G&A costs, can anyone really say that the cumulative intrinsic value of the six 100% owned businesses is negative? And not just a little negative... negative $65 per share??!!