BH - Biglari Holdings

[Redskin212]

http://www.cnbc.com/id/101295433

[ragnarisapirate]

 

 

For what it's worth, I attended the annual meeting (been a shareholder since early SNS days), and Biglari said a few interesting things relevant to this conversation:

1) To paraphrase, he would not sell CBRL because it would hurt his credibility in future investments. He wants to make money, and he thinks a controlling stake allows him to do this better than investing and being bought out.

 

 

I guess he didn't mean that?

[rayfinkle]

Ragnar-

 

Right on. I honestly don't care though at this point...from my perspective it'd be great to not be stuck with this as a minority holding...control or liquidate!

[Kuhndan]

I think Biglari has painted himself into a corner in regards to his Cracker Barrel stake. He has lost three proxy votes with minimal shareholder support outside his own shares. He has no leverage at this point to push for a sale of the company and I doubt management is interested in buying him out at this price. They also probably don't mind seeing Biglari squirm while he gropes for an exit.

 

If he starts selling in the open market, his volume will most likely drive the stock price down.

 

While Biglari has suggested that he is pursuing financing for a possible buyout bid, this transaction would be like the minnow swallowing the whale with the resulting enterprise extremely leveraged.......on second thought, think about the potential conflict of interests this option represents.

 

Let's say Biglari successfully pursues a buy out of Cracker Barrel. While this may not be in the best interests of Biglari Holdings shareholders, it wouldn't be bad a bad outcome for Sardar. The Lion Fund is currently invested in basically only one stock. With minimal exit options and Cracker Barrel fairly valued, with limited upside, Sardar's personal compensation opportunity at the Lion Fund appears to be limited.

 

Of course he could arrange for Biglari Holdings to acquire Cracker Barrel. This would allow the Lion Fund to exit its position at a premium and Sardar would be able to personally profit from the gain in investments. Biglari Holdings would then be a significantly leveraged company and possibly decline in value for over paying for the buy out. Sardar could use his personal bonus from the Lion fund to buy more stock in BH at a potentially depressed price.

 

While I doubt he could arrange financing for a buy out, nor do I think he is serious, the potential conflicts of interest are hard to discount.

[wescobrk]

It's been a week and a half and no news release.

The board isn't exactly in a hurry.

Maybe something is going on or they might just ignore him.

Sardar can call the special meeting but I seriously doubt he will be able to obtain many votes.

 

[giofranchi]

I think Biglari has painted himself into a corner in regards to his Cracker Barrel stake. He has lost three proxy votes with minimal shareholder support outside his own shares. He has no leverage at this point to push for a sale of the company and I doubt management is interested in buying him out at this price. They also probably don't mind seeing Biglari squirm while he gropes for an exit.

 

If he starts selling in the open market, his volume will most likely drive the stock price down.

 

While Biglari has suggested that he is pursuing financing for a possible buyout bid, this transaction would be like the minnow swallowing the whale with the resulting enterprise extremely leveraged.......on second thought, think about the potential conflict of interests this option represents.

 

Let's say Biglari successfully pursues a buy out of Cracker Barrel. While this may not be in the best interests of Biglari Holdings shareholders, it wouldn't be bad a bad outcome for Sardar. The Lion Fund is currently invested in basically only one stock. With minimal exit options and Cracker Barrel fairly valued, with limited upside, Sardar's personal compensation opportunity at the Lion Fund appears to be limited.

 

Of course he could arrange for Biglari Holdings to acquire Cracker Barrel. This would allow the Lion Fund to exit its position at a premium and Sardar would be able to personally profit from the gain in investments. Biglari Holdings would then be a significantly leveraged company and possibly decline in value for over paying for the buy out. Sardar could use his personal bonus from the Lion fund to buy more stock in BH at a potentially depressed price.

 

While I doubt he could arrange financing for a buy out, nor do I think he is serious, the potential conflicts of interest are hard to discount.

 

Maybe you are right about “the potential conflicts of interest”… Sincerely, I don’t know… I have a hard time to judge such things… What I do understand and know is that to buy CBRL or to get out makes business sense. And I would be doing the same thing.

Furthermore, I am not so sure management won’t buy BH out at this price… The only reason Mr. Biglari couldn’t get a wider shareholders support is that a rising stock price makes things look too good to complain nowadays… Mr. Biglari is never satisfied, he always wants more… but other shareholders clearly don’t push that hard! They want to relax, enjoy the ride, and minimize frictions as much as possible… until the ride lasts, of course!!

If CBRL’s stock price should decline, and Mr. Biglari still be around, I am sure current management knows they won’t be dealt with such an easy hand this time around! And imo they will act not to find themselves in such a situation. ;)

 

Gio

 

[Redskin212]

Gio,

 

Your point about CBRL buying Biglari is very interesting. I would love to see the shoe on the other foot for Sardar.  CBRL certainly has the capacity to lever up,  take out BH and rename it Stake and Shake.  I hope that is why CBRL's management has been so quiet lately.

[rayfinkle]

I think Biglari has painted himself into a corner in regards to his Cracker Barrel stake. He has lost three proxy votes with minimal shareholder support outside his own shares. He has no leverage at this point to push for a sale of the company and I doubt management is interested in buying him out at this price. They also probably don't mind seeing Biglari squirm while he gropes for an exit.

 

If he starts selling in the open market, his volume will most likely drive the stock price down.

 

While Biglari has suggested that he is pursuing financing for a possible buyout bid, this transaction would be like the minnow swallowing the whale with the resulting enterprise extremely leveraged.......on second thought, think about the potential conflict of interests this option represents.

 

Let's say Biglari successfully pursues a buy out of Cracker Barrel. While this may not be in the best interests of Biglari Holdings shareholders, it wouldn't be bad a bad outcome for Sardar. The Lion Fund is currently invested in basically only one stock. With minimal exit options and Cracker Barrel fairly valued, with limited upside, Sardar's personal compensation opportunity at the Lion Fund appears to be limited.

 

Of course he could arrange for Biglari Holdings to acquire Cracker Barrel. This would allow the Lion Fund to exit its position at a premium and Sardar would be able to personally profit from the gain in investments. Biglari Holdings would then be a significantly leveraged company and possibly decline in value for over paying for the buy out. Sardar could use his personal bonus from the Lion fund to buy more stock in BH at a potentially depressed price.

 

While I doubt he could arrange financing for a buy out, nor do I think he is serious, the potential conflicts of interest are hard to discount.

 

Maybe you are right about “the potential conflicts of interest”… Sincerely, I don’t know… I have a hard time to judge such things… What I do understand and know is that to buy CBRL or to get out makes business sense. And I would be doing the same thing.

Furthermore, I am not so sure management won’t buy BH out at this price… The only reason Mr. Biglari couldn’t get a wider shareholders support is that a rising stock price makes things look too good to complain nowadays… Mr. Biglari is never satisfied, he always wants more… but other shareholders clearly don’t push that hard! They want to relax, enjoy the ride, and minimize frictions as much as possible… until the ride lasts, of course!!

If CBRL’s stock price should decline, and Mr. Biglari still be around, I am sure current management knows they won’t be dealt with such an easy hand this time around! And imo they will act not to find themselves in such a situation. ;)

 

Gio

 

Gio I agree. Here's my read:

1) best outcome: sardar buys company. He believes Cbrl is worth more to him than current management. The large sg$a investments over the past few years for SNS probably scale. So under BH management CBRL benefits from sunk investments into systems to save on sourcing, etc. biglari is behaving as if over them long term the benefits of building scale ind brand name restaurant business are great.

2) middle outcome: BH sells CBRL. Even at a rich price this is less good, as it seems biglari then has to hunt for a new way to scale into the infrastructure. Note he mentioned at the meeting he reads almost every restaurant co. Annual report. This plus past investments suggest that CBRL is the preferred choice today, but not the only alternative.

3) worst outcome: continued minority ownership (if it is a continued distraction for either BH or CBRL management)

[Kuhndan]

"Furthermore, I am not so sure management won’t buy BH out at this price… "

 

Don't forget Biglari Holdings adopted the royalty plan for Sardar earlier this year that makes a buy out of the company largely unattractive. I doubt management would want to go down that path. I don't see an easy way for him to exit his position.

[wescobrk]

Last time cbrl offered to buy him out they required a 3 year standstill agreement.

Do you guys think sardar will agree to such a thing?

I'm sure he would love to buy back in if there is a big drop in the market in the future.

[dcollon]

Cracker Barrel Issues Statement in Response to Biglari Demand

Monday, December 30, 2013 02:00:00 PM (GMT)

 

 

Cracker Barrel Old Country Store, Inc. ("Cracker Barrel" or the "Company") (Nasdaq:CBRL) said today that its Board of Directors has considered both Sardar Biglari’s recent filing and subsequent letter demanding that the Company commence a sale process, and has determined that the continued execution of the Company’s existing business strategy is currently the proper course of action for the long-term best interests of the Company and its shareholders.

 

Commenting on the decision, James W. Bradford, Chairman of the Board of Cracker Barrel said: “We are disappointed that Mr. Biglari is seeking to call a special meeting to vote on a proposal requesting that the Company commence a sale process, particularly in light of his defeat by substantial margins in three consecutive proxy contests. Cracker Barrel’s Board of Directors continues to believe that the execution of management’s existing business strategy will create the most value for all shareholders. The Board regularly evaluates all options to serve the best interests of the Company and its shareholders and will continue to do so.”

 

[wescobrk]

Looks like the only option is to sell now unless he wants to go through the formality of a special meeting and not get many votes.

No surprise here. Cbrl has the leverage after 3 straight wins.

I wouldn't be surprised that they raise the dividend after he sells just to try to stick it to him.

Sardar made a quarter of a billion so he certainly didn't lose from his criterion of making money.

Time to move on.

[ragu]

Ragu,

My comment wasn't directed at capital allocation decisions where he has complete control.  Rather, I was observing that in matters where he needs the cooperation of others, Sardar should slow down and relax!

 

onyx1,

 

Thanks much for the clarification. Sardar has clearly lost a lot of goodwill since the proposal of the incentive compensation at BH. Much of it undeservedly so, IMO.

 

From a personality perspective, I've always wondered how Berkshire would've panned out if it had someone like Munger at the helm. I suspect I might get my answer as things unfold at BH.

 

Best,

Ragu

[giofranchi]

From a personality perspective, I've always wondered how Berkshire would've panned out if it had someone like Munger at the helm. I suspect I might get my answer as things unfold at BH.

 

Best,

Ragu

 

Though, of course, I cannot know, Mr. Munger has always seemed to me much less ambitious than both Mr. Buffett and Mr. Biglari. I might be wrong, but I don’t see Mr. Biglari, nor Mr. Buffett obviously, be vice-president of anything…

 

Ragu,

What’s your view on the current situation with CBRL? Do you think BH’s stake will be bought out by CBRL’s management? If no, how do you think Mr. Biglari will move on from here?

Thank you,

 

Gio

 

[ragu]

Though, of course, I cannot know, Mr. Munger has always seemed to me much less ambitious than both Mr. Buffett and Mr. Biglari.

 

gio,

 

I agree. Biglari's drive and ambition is definitely way out of the ordinary, much like Buffett.

 

I was thinking more of the parallels with Munger's personality (lack of any pretense at modesty, unafraid to criticize by name, calling a spade a bloody spade etc.).

 

What’s your view on the current situation with CBRL? Do you think BH’s stake will be bought out by CBRL’s management? If no, how do you think Mr. Biglari will move on from here?

 

Clearly, the current situation is unsatisfactory from BH's perspective (and those of the other CBRL shareholders even if they aren't bright enough to realize it yet). I don't think BH's entire stake will be bought out by CBRL's management for the reason that Sardar has said that he'll only consider tendering his shares in a repurchase.

 

As for what happens from here, I think this sentence from the last letter to management pushing for a sale is interesting:

 

But other sophisticated buyers also should have the opportunity to bid for the Company.

 

While it's always possible that this is simply an attempt to forestall any management fear-mongering attempts that he will "steal" the company, I suspect Biglari wouldn't be entirely unhappy with a bidding war for CBRL. And that one might well start with a bid from Biglari and, quite possibly, Jeffries.

 

Best,

Ragu

[giofranchi]

As for what happens from here, I think this sentence from the last letter to management pushing for a sale is interesting:

 

But other sophisticated buyers also should have the opportunity to bid for the Company.

 

While it's always possible that this is simply an attempt to forestall any management fear-mongering attempts that he will "steal" the company, I suspect Biglari wouldn't be entirely unhappy with a bidding war for CBRL. And that one might well start with a bid from Biglari and, quite possibly, Jeffries.

 

Best,

Ragu

 

Interesting. Thank you! :)

We will see.

 

Best,

 

Gio

[gg]

I don't understand why CBRL doesn't try to gain some leverage by buying up shares of BH. If they bought enough BH, there are several ways they can make money:

a) It would allow them to potentially take over BH (which is essentially a 20% CBRL stock buyback plus the Steak N Shake franchise)

b) Become a big enough nuisance to Biglari that he agrees to some sort of swap of BH's CBRL shares in return for CBRL's BH shares

c) Simply just buy and hold BH stock, and in a base case, they have exposure to their own shares (via BH ownership) at a discount. Best case, each time Biglari tried to call a special meeting or fight a proxy battle, they do the exact same to BH

[giofranchi]

I don't understand why CBRL doesn't try to gain some leverage by buying up shares of BH. If they bought enough BH, there are several ways they can make money:

a) It would allow them to potentially take over BH (which is essentially a 20% CBRL stock buyback plus the Steak N Shake franchise)

b) Become a big enough nuisance to Biglari that he agrees to some sort of swap of BH's CBRL shares in return for CBRL's BH shares

c) Simply just buy and hold BH stock, and in a base case, they have exposure to their own shares (via BH ownership) at a discount. Best case, each time Biglari tried to call a special meeting or fight a proxy battle, they do the exact same to BH

 

Very simple: they don’t do what you suggest, because they do not have an entrepreneurial mind… just like Mr. Biglari has always said! ;)

 

Gio

 

[RichardGibbons]

I think the real reason is that Cracker Barrel knows that they won't win that way.  I think it would actually be irresponsible of them to purchase shares of BH. 

 

They've seen ample evidence that Biglari is willing to harm minority shareholders in order to consolidate control and maximize his personal profits (e.g. his compensation schemes, the whole licensing of his name stuff, the share consolidation to bump out small shareholders).  They definitely shouldn't invest CRBL's resources in a company where there's a reasonable chance that the CEO would deliberately try to screw them.

 

 

[giofranchi]

I invite anyone who is skeptical about Mr. Biglari’s business acumen to think hard about what he writes in the first 7 lines of the 2013AL:

 

In August 2008 we took control of the predecessor company, a money-losing restaurant chain. We turned the business around, and it became the base company, a financial springboard for the enterprise we founded, Biglari Holdings. We assumed management of a company with $1.6 million in cash and investments. Through effective operational and financial management, Biglari Holdings ended fiscal 2013 with $635.4 million in cash and investments. True, $75.6 million of the increase came through a rights offering to existing shareholders. Yet most of the progress occurred by means of value creation.

 

Imo, it is nothing short of amazing! :)

 

Gio

 

[merkhet]

I don't think you can just look at $1.6 million --> $635.4 million minus $75.6 million.

 

If he took control of subsidiaries that deliver free cash flow of $100 million a year, then he has done nothing special.

 

There should be more to that story.

[Parsad]

I don't think you can just look at $1.6 million --> $635.4 million minus $75.6 million.

 

If he took control of subsidiaries that deliver free cash flow of $100 million a year, then he has done nothing special.

 

There should be more to that story.

 

Don't forget the $80M or so, whatever the number was, that they brought up from Steak'n Shake the subsidiary by leveraging it with debt.  Also, $14M in tax reassessments that saved the company, which was the idea of the company's accountant and a former friend of Biglari's.  As well as, the sale and leaseback of many of the underperforming stores which generated tens of millions. 

 

Nonetheless, he has done very well since taking over and even after all of those things, it is still quite impressive.  Cheers!

[giofranchi]

If he took control of subsidiaries that deliver free cash flow of $100 million a year, then he has done nothing special.

 

I don’t think this is truly relevant. When I speak of “business acumen”, I mean both on the operations and in finance / investing. They both are important and complement themselves in the process of building wealth. I myself, just like Mr. Biglari, though on a much smaller scale, focus everyday both on improving the quality of operations and on effective capital allocation decisions.

 

When Mr. Biglari bought SNS for a pittance, it certainly wasn’t the cash machine it is today. In fact, as he pointed out in line number 1 of the 2013AL, it was a “money losing restaurant chain”. What truly matters is the cost he paid to take control over SNS operations, and his ability to turn that business from an unprofitable one into a cash cow.

 

Anyone can have his/her opinions on Mr. Biglari’s character features and ethics, but no serious entrepreneur should underestimate or fail to recognize the business achievements he has accomplished from late 2008 until today. :)

 

Gio

 

[adesigar]

If he took control of subsidiaries that deliver free cash flow of $100 million a year, then he has done nothing special.

 

I don’t think this is truly relevant. When I speak of “business acumen”, I mean both on the operations and in finance / investing. They both are important and complement themselves in the process of building wealth. I myself, just like Mr. Biglari, though on a much smaller scale, focus everyday both on improving the quality of operations and on effective capital allocation decisions.

 

When Mr. Biglari bought SNS for a pittance, it certainly wasn’t the cash machine it is today. In fact, as he pointed out in line number 1 of the 2013AL, it was a “money losing restaurant chain”. What truly matters is the cost he paid to take control over SNS operations, and his ability to turn that business from an unprofitable one into a cash cow.

 

Anyone can have his/her opinions on Mr. Biglari’s character features and ethics, but no serious entrepreneur should underestimate or fail to recognize the business achievements he has accomplished from late 2008 until today. :)

 

Gio

 

Im no expert on Biglari Holdings so I apologise if im not making much sense. I looked into it a few years back and decided it wasn't my cup of tea.  You mention the business achievements from 2008 (The depths of the financial crisis) until today (all time market highs).  I did a quick check on Yahoo of BH vs Competitors.

                                      2009      2014

BH (Biglari Holdings)        $101      $480  =  480% increase

DIN (DineEquity)              $8.7      $83    =  950% Increase

DENN (Dennys)                $1.68    $6.93  =  412% Increase

RRGB (Red Robin)              $12.65  $67    =  529% Increase

RT (Ruby Tuesdays)            $1.2      $5.92  =  493% increase

 

Stockprice of BH seems to have underperformed most of its competitors over the last 5 years. So how much of the improvement of the business is due to improvement in the industry ?

[giofranchi]

Stockprice of BH seems to have underperformed most of its competitors over the last 5 years. So how much of the improvement of the business is due to improvement in the industry ?

 

Well, of course this I cannot say… But, as I have expressed in the past, good businessmen / investors somehow put themselves in good businesses / industries… Also, I clearly was not talking about BH stock market returns. The fact it underperformed some of its peers on a 5 years horizon doesn’t tell me much: I would be very surprised if on a 10 years horizon (meaning 5 years from now) those companies are still ahead of BH, and on a 15 years horizon I am almost positive they all will lag far behind BH.

 

Gio