BH - Biglari Holdings

[giofranchi]

http://www.prnewswire.com/news-releases/biglari-holdings-inc-acquires-first-guard-insurance-company-251047701.html

 

By writing business directly rather than through agents and brokers, First Guard enjoys one of the lowest cost structures in the insurance industry.

 

The Geico of truckers insurance.

 

Best,

Ragu

 

I like this. It took a while, but in the end Mr. Biglari succeeded in purchasing an insurance company. And one that seems to have a long track-record of underwriting profitably.

 

I would like to point this out: Mr. Watsa in his latest letter has written:

Fairfax is very much in the restaurant business in Canada!

Therefore: insurance + fast food franchising.

Now, BH is in the insurance business.

Therefore: fast food franchising + insurance.

 

;)

 

Gio

 

[kam2308]

Is anyone planning on going to the annual meeting?

[peridotcapital]

Is anyone planning on going to the annual meeting?

 

I'll be there and will be happy to share some notes.

[kam2308]

Is anyone planning on going to the annual meeting?

 

I'll be there and will be happy to share some notes.

 

Cool.  I'd be happy to meet up before the meeting or get drinks afterwards with you or anyone else who is interested. 

[peridotcapital]

Is anyone planning on going to the annual meeting?

 

I'll be there and will be happy to share some notes.

 

Cool.  I'd be happy to meet up before the meeting or get drinks afterwards with you or anyone else who is interested.

 

Appreciate the offer, but I'm going to be meeting up with some friends who I haven't seen in a while, since I'll be coming in from out of town for a short trip.

[wescobrk]

I'll be there and I'm up for chatting after.

[ragu]

I'll be there and will be happy to share some notes.

 

peridotcapital,

 

Many thanks in advance!

 

A request: Could you ask Sardar if he is able to comment on Duane Geiger, the former CFO, leaving the company?

 

Best,

Ragu

[OracleofCarolina]

Not a surprise, Biglari loses again in the CBRL meeting today...maybe it is time to move on

[Parsad]

Not a surprise, Biglari loses again in the CBRL meeting today...maybe it is time to move on

 

He has the longest time horizon and holding period...why move on?  Eventually, after five more years, he would have worn management and shareholders down.  ;D 

 

At that point, they'll pay a premium to him for his shares...just to leave them alone.  It's called the "Icahn greenmail premium"!  Cheers!

[abitofvalue]

To say he lost again is an understatement:

 

Preliminary results indicate that approximately 70% of the shares voted - including more than 92% of the shares voted by shareholders other than Biglari Capital - were cast against both proposals.

 

92% of non-Biglari Capital shareholders voted against him.  That's pretty overwhelming.  Suggests one of two things:

(a) his proposal's aren't very good or

(b) he has managed to piss his partners off so much that they are voting against him despite the fact that its going to cost them money. 

 

Time for Sardar to acknowledge that maybe he is doing something wrong.  Will his ego allow him to do this? or will he continue to believe that only he knows whats best?

 

[ragu]

92% of non-Biglari Capital shareholders voted against him.  That's pretty overwhelming.  Suggests [...]

 

Only one thing when it comes to CBRL: Shareholders should think independently and not let proxy advisory firms dictate voting outcomes.

 

or will he continue to believe that only he knows whats best?

 

It's not just a question of belief, you know. He is absolutely right based on the facts here.

 

CBRL management is completely clueless when it comes to capital allocation (and only less so when it comes to operations). Tack on the fact that they have very little integrity and have zero interest in long-term value creation. They care about one thing: keeping their cushy jobs without having to answer to someone as rational as Sardar on the board.

 

The longer current management and board hang on, the more damage they will do to the long-term value of CBRL. Shareholders are far too blinded by the stock performance of the last few years to see it. As long as Sardar keeps his stake and is unable to get on the board, this remains a real risk for BH.

 

Best,

Ragu

[abitofvalue]

 

Only one thing when it comes to CBRL: Shareholders should think independently and not let proxy advisory firms dictate voting outcomes.

 

 

Oh come-on.  It's a little much to pretend that only shareholders who are with Biglari are truly independent and thinking for themselves while the rest are just sheep listening to proxy advisory firms. 

[giofranchi]

Oh come-on.  It's a little much to pretend that only shareholders who are with Biglari are truly independent and thinking for themselves while the rest are just sheep listening to proxy advisory firms.

 

Maybe not… But shareholders lulled into autopilot thinking by a rising stock price are very common… too much so!!

 

Btw, what flaws do you find in Mr. Biglari’s proposals for CBRL? It basically is the same recipe he used to turn around Steak’n Shake… And it worked quite well! ;)

 

Gio

 

[giofranchi]

As long as Sardar keeps his stake and is unable to get on the board, this remains a real risk for BH.

 

+1 (unfortunately)

 

Gio

[ragu]

Oh come-on.  It's a little much to pretend that only shareholders who are with Biglari are truly independent and thinking for themselves while the rest are just sheep listening to proxy advisory firms.

 

There's no need to pretend when the facts are clear.

 

www.enhancecrackerbarrel.com is a pretty good start to actually understanding this situation.

 

HTH,

Ragu

[Parsad]

Oh come-on.  It's a little much to pretend that only shareholders who are with Biglari are truly independent and thinking for themselves while the rest are just sheep listening to proxy advisory firms.

 

There's no need to pretend when the facts are clear.

 

www.enhancecrackerbarrel.com is a pretty good start to actually understanding this situation.

 

HTH,

Ragu

 

Crackerbarrel and Steak'n Shake are two very different animals.  Crackerbarrel's executives have done a mediocre job.  Steak'n Shake was falling off a cliff and was six months from bankruptcy.  So Sardar's arguments about capital allocation aren't quite on comparable levels here, nor completely accurate.  Frankly, I'm not sure why he didn't pick an easier target than CBRL!  Cheers!

[Kash50]

Did anyone make it to BH's annual meeting ??

[OracleofCarolina]

Yep, I'll put some notes up in a day or two.

 

Jason

[bookie71]

They also have very different demographics. 

[rkbabang]

They also have very different demographics. 

 

What? You don't think the Cracker Barrel clientele wishes to eat while a creepy picture of Biglari is hanging on the wall staring at them?

[giofranchi]

Crackerbarrel and Steak'n Shake are two very different animals.  Crackerbarrel's executives have done a mediocre job.  Steak'n Shake was falling off a cliff and was six months from bankruptcy.  So Sardar's arguments about capital allocation aren't quite on comparable levels here, nor completely accurate.  Frankly, I'm not sure why he didn't pick an easier target than CBRL!  Cheers!

 

I agree.

Anyway, 1 year and a half ago CBRL was an undervalued stock, and the healthy rise in price is testimony to that. But today CBRL is no longer undervalued, and from now on to be a good investment it must create value.

To create value, Mr. Biglari proposals make sense; CBRL’s management on the other hand is completely unconvincing…

Now, a shareholder should always think about the future, and not be content with the past, just because the recent past has delivered solid results. ;)

 

Gio

 

[gg]

Has anyone found any blogs or sites with notes from the annual meeting yet? If so, please share

[oddballstocks]

They also have very different demographics.

 

How so?  All of the freeway exits in the Midwest that have a Steak n Shake have a Cracker Barrel as well.  Having grown up in the Midwest and having frequented both places many of times I'd say the only difference is that Cracker Barrel's average patron age is older.

 

I can even see some of BH's rationale here, you can cut distribution costs in half by sending a truck to both locations along the same routes.

[peridotcapital]

Here are some of my notes from the annual meeting. I've condensed them to what I think is most worthwhile, but feel to free to ask anything else if you want and I'll do my best to recall his answers.

 

First Guard: Blueprint for acquisitions, great manager who will stay on and be highly incentivized to continue strong underwriting results. Minimal float due to fact that property claims are paid out very quickly, but do expect to add casualty companies in the future (nothing in the works right now), where float would be more meaningful. SNS actually has more float than First Guard (gift card sales). Should expect some targeted growth (marketing initiative of $500,000 was one of the first moves) but nothing dramatic in the near to intermediate term.

 

Cracker Barrel: Lots of negative comments re: CBRL management. Do not get the sense he will be selling. Said he would only do so if the stock got to be "overvalued" and it forced his hand. To me, since it hit $118 and there was no movement there, it seems he will continue to hold, wait for TN law to expire in early 2017. He did say he would like to buy the whole company. As long as total shareholder returns are strong, proxy advisers will be against BH, and he won’t win board seats, but restaurant multiples won't rise forever. He believes he could cut 30-50M from expenses and increase traffic by 5% if he got on the board (conversely traffic has declined by 1% since the current CEO took over, despite 18% increase in marketing spend).

 

Steak N Shake: Increased G&A spend will start to stabilize after years of increases. Continue to focus on mostly int'l franchise unit growth (pipeline of 220 units), with a few units in the US (west coast is attractive, Santa Monica location will open this year). Focus is on high quality, great service, at lowest possible price. Not focused on margins (I asked about normalized margins for SNS and he sidestepped it) He clearly prefers guest traffic at expense of margin per guest (a la Costco, Walmart). Lots of licensing deals in the works too (SNS chili at select WMT locations and growing…. microwavable shakes in the pipeline). Despite saying he doesn't care about margins (which I don't believe, since he could lower prices further and would still have higher margins than Costco and Walmart), he did say that franchised locations could earn 50% margins (although current investment levels are above 50% of royalties).

 

Maxim: He had never seen the magazine. Bought a copy, read through it, and decided to buy it. Believes the brand itself is worth more than he paid (did not disclose purchase price). The plan is to upgrade the quality of the magazine later this year (September relaunch), but ultimately breaking or even losing a bit on the magazine is fine, as licensing the brand will be where the major money will be (Playboy business model) and where the transformation will be focused. The losses are ugly today, and will get worse as they spend more money to move into other areas. Expects a 2-4 year window until results start to show traction. No debt maturities to worry about, BH only assumed the assets and the old management team is gone. To me, this will likely be a major drag on BH's results for several years, but as we all know he doesn't care about the short term.

 

Lion Fund: A couple people gave him a hard time about the incentive fees he will get, price of the BCC sale, etc. He and Phil both dodged the meat of those concerns, but it sounds like most of the public market investments will be through the LPs and whole acquisitions will be through BH, with some minor exceptions (which were not expanded on).

 

CCA: It has not worked out well thus far, but it’s so small… only a “rounding error.” “I will focus on rounding, you will likely focus on error." BH has had $200 of gains for every $1 of loss so far. Current CCA management is doing the best they can.

 

Unico American: “No comment.” Interesting, because he commented on every other holding...

[giofranchi]

Thanks peridotcapital.

 

+1

Much appreciated! :)

 

Gio