BH - Biglari Holdings

[randomep]

 

I just started looking at BH last weekend. And I have a question that I hope you guys can answer. If the boss wants to invest in a business, how will he do it? Through buying it as a wholly owned BH subsidiary or through investing in the lion funds and buy it through the funds?

 

thanks

 

Buying whole businesses is directly through BH parent. Buying marketable securities is through the Lion fund.

He bought Maxim magazine and First guard insurance this year. I think these two as well as Steak n Shake franchisee platform are sufficient investing platforms for him for the next few years. He will plow earnings into these platforms and grow from there.

 

Muscleman, is this your general impression or is this something in the articles of incorporation?

 

I want to know is the decision at his discretion with the only constraint on his actions is his fiduciary duty to the BH sharedholders?

 

BTW, you have quite a bit invested in BH huh? certainly gives me a bit more confidence

 

Ok I found the answer in someone's meeting notes: it is up to his discretion.... no hard and fast rule.

 

 

 

[bobozou]

I'm curious on how the rest of you are valuing the restaurant part...

 

 

EBITDA (including interest for leases) was 52M (2014), though it was as high as 74M (2012).

 

They have roughly 220M of debt outstanding (excluding lease obligations).

 

If I just take 2014's numbers, and use EV/EBITDA of 10 to value the restaurant I get roughly $300M valuation (52*10-220).

 

 

Is $300M the value that you (shareholders) are ascribing to the restaurant?

 

If not (and your value is higher), are you applying a higher multiple?  Are you assuming higher EBITDA margin (ie historical levels)?

[muscleman]

 

I just started looking at BH last weekend. And I have a question that I hope you guys can answer. If the boss wants to invest in a business, how will he do it? Through buying it as a wholly owned BH subsidiary or through investing in the lion funds and buy it through the funds?

 

thanks

 

Buying whole businesses is directly through BH parent. Buying marketable securities is through the Lion fund.

He bought Maxim magazine and First guard insurance this year. I think these two as well as Steak n Shake franchisee platform are sufficient investing platforms for him for the next few years. He will plow earnings into these platforms and grow from there.

 

Muscleman, is this your general impression or is this something in the articles of incorporation?

 

I want to know is the decision at his discretion with the only constraint on his actions is his fiduciary duty to the BH sharedholders?

 

BTW, you have quite a bit invested in BH huh? certainly gives me a bit more confidence

 

If you gain more confidence merely because I have a good sized position, that is called confirmation bias. This kind of mentality will hurt you. You should read "The little book of behavior investing" and be careful of these mind traps. :)

Whether I have a big or small position has no impact on whether BH is a good investment at this price and Whether Biglari can be trusted.

[muscleman]

I'm curious on how the rest of you are valuing the restaurant part...

 

 

EBITDA (including interest for leases) was 52M (2014), though it was as high as 74M (2012).

 

They have roughly 220M of debt outstanding (excluding lease obligations).

 

If I just take 2014's numbers, and use EV/EBITDA of 10 to value the restaurant I get roughly $300M valuation (52*10-220).

 

 

Is $300M the value that you (shareholders) are ascribing to the restaurant?

 

If not (and your value is higher), are you applying a higher multiple?  Are you assuming higher EBITDA margin (ie historical levels)?

 

Read accounting 101. Compare Amazon with SalesForce.com's accounting and get back here. Ask yourself why did the earning drop from 2012 to 2014.

[giofranchi]

whether BH is a good investment at this price and Whether Biglari can be trusted.

 

The second part is much more difficult than the first...

 

So, let me reiterate my view: the first time I see Biglari doing something I wouldn’t do, if I were in his stead, that’s when I will start thinking he cannot be trusted.

 

Gio

 

[bobozou]

NBL0303 - thanks for response, helpful perspective/color

 

muscleman - I'm not familiar at all with salesforce accounting... but is the suggestion that the ramp-up in BH administrative expenses is more of an investment (in franchisee marketing/training), similar to the way Amazon aggressively expenses investments for both 1) tax purposes and 2) to obfuscate true earnings?

[mateo999]

What exactly are you all envisioning as the one-time costs/investments required for franchise training?  I'd assume new hires?  They (the franchisor, Steak n Shake Enterprises, Inc. ) just hired a new CFO in June (coming from a rich background in shoes).  Replaced their VP of franchise operations in March.  Fired both their VP of Franchise Sales and their VP Design & Construction Development sometime in the last few months.  From my conversations with franchisees, they tell me the turnover has been palpable and has been a cause of frustration.

[muscleman]

NBL0303 - thanks for response, helpful perspective/color

 

muscleman - I'm not familiar at all with salesforce accounting... but is the suggestion that the ramp-up in BH administrative expenses is more of an investment (in franchisee marketing/training), similar to the way Amazon aggressively expenses investments for both 1) tax purposes and 2) to obfuscate true earnings?

 

Yes. SalesForce aggressively capitalizes software development costs while Amazon expenses them through income statement. As a result, not only is CRM's book value higher, but also the net income higher.

Steak n Shake is putting in a lot of money into franchisee training. Look at the last few years of BH letter that says the % of G&A going into that, and see how much franchisee revenue has increased the next year. Figure out the investment return for Steak n Shake to plow cash into this franchisee growth platform and ask yourself if this is a logical investment.

 

My view is that Steak n Shake valuation should be viewed as two parts: The existing restaurants as cash cow, and the franchisee platform where you can plow cash into it and get some return. Get all of that, and apply the "Biglari discount". That will give you a conservative valuation.  :)

[peridotcapital]

I'm curious on how the rest of you are valuing the restaurant part...

 

 

EBITDA (including interest for leases) was 52M (2014), though it was as high as 74M (2012).

 

They have roughly 220M of debt outstanding (excluding lease obligations).

 

If I just take 2014's numbers, and use EV/EBITDA of 10 to value the restaurant I get roughly $300M valuation (52*10-220).

 

 

Is $300M the value that you (shareholders) are ascribing to the restaurant?

 

If not (and your value is higher), are you applying a higher multiple?  Are you assuming higher EBITDA margin (ie historical levels)?

 

That is how I am looking at it. A 10 multiple is probably the high end of fair. Restaurant deals are generally done at 8x, and while franchisers can get a 10+ multiple, SNS still gets 98% of revenue from owned units. I would also forget about the higher historical EBITDA figures from the pre-franchising days. The costs of running a global franchising operation are material, as we've seen in recent years and they will not simply go away one day. Level off as a % of sales, sure, but most of these costs are recurring and will even grow as the # of franchised units goes from 100 to 1,000 over time.

[innerscorecard]

Is everyone else here just brushing off mateo999's scuttlebutt?

[mateo999]

Is everyone else here just brushing off mateo999's scuttlebutt?

 

Ha!  I want to like this stock.  I do, and wouldn't have spent so much time researching if I didn't think this was worthwhile to dig into.  I just think the franchise unit commitments are going to prove ephemeral.  Put another way, given the allegations in the lawsuits out there, would you open a SNS?  The Paramus, NJ location should be minting money.  It's owner should be excited about opening its next 3 units, not be bickering in court.  But not to worry-- the jockey has a self-proclaimed better than .900 batting average.

 

I'll point out that, though rare, there are instances of restuarant chains trading/having traded (for decent lengths of time) at the same ev/sales ratio as implied today for SNS... that is, according to my calculus anyway.

 

If Sardar's priority is truly to create shareholder value, why not bring in a real restaurant management team with franchising experience to run SNS separately?  After a yr, spin it off and change the ticker back.  I'll tell you why- because the first thing they'd do would be to rip those ridiculous pictures of Sardar off the wall.  Then order new signage sans "by Biglari".

 

As I said, I'm a bit torn.  Longs will inevitably answer (likely internally, as it seems I don't get many replies): "it's a cash machine funding Sar and Phil's future brilliance", or "it's irrelevant, SNS has a negative implied mkt cap & the debt's non recourse, silly,".  But deep down I think they probably know of COBF members that could do a better job than Sardar has with the same set of assets (I personally would just call JACK and see if they wanted to buy me).  That's why I ultimately passed on the stock.

 

[giofranchi]

But deep down I think they probably know of COBF members that could do a better job than Sardar has with the same set of assets

 

mateo999,

 

I take your criticism seriously, because you have evidently talked to many potential franchisee… But let me tell you that I totally disagree with your statement above. As much as I admire many COBF members, I don’t know of a single person I would feel safe to replace Biglari with… Not only among COBF members, but in general!

 

I also don’t agree with your suggestion of bringing in another CEO to run SNS: that business under Biglari’s lead has performed wonders! I couldn’t be more impressed!

 

And I am confident that, if, like you say, the franchise unit commitments should prove to be ephemeral, Biglari will recognize the problem and act accordingly (probably just letting them have somewhat higher margins!).

 

Gio

 

 

 

[bobozou]

fwiw - i haven't gone to the level that mateo has in researching franchisee performance...

 

 

BH is not expensive, and probably cheap.  Certainly cheap, if you compare it to select restaurant peers, like CRBL.  Very cheap, if you feel confident it can fetch a higher multiple.  EXTREMELY cheap, if you think Biglari has 'above average' capital allocation abilities and ebitda is artificially depressed, because of 'investment' in the franchisee model

 

 

On the flipside, imo there's alot of warts - the kind that don't go away unless you think really highly of Biglari.  Going back to the 'expense' vs 'investment' argument, I think it inherently requires faith in the management team.  It's one thing to say, 'trust Bezos, when he expenses investments'... It's another to say 'trust Biglari, when he expenses investments'... I feel like the folks who believe that EBITDA will return to normal levels are placing a high level of faith in Biglari - fine for you, not for me.

 

Biglari himself certainly has alot of controversy around him.  You could argue that Bezos is controversial, but I dont really think its quite the same.  The concerns here revolve around 1) compensation, 2) ego, 3) related-party deals with his own investment vehicles (lets call it 'lack of transparency'), 4) shareholder fairness esp wrt minority shareholders ('Is the annual ritual of rights offerings beneficial to all shareholders?')

 

Final point, I'd feel much better if Biglari's mantra was '1) buy stuff for cheap, 2) financial engineer or cut fat, 3) sell it for alot more, 4) everyone gets rich (Biglari gets really rich)'.  I think Biglari is capable for that...

 

HOWEVER, if his mantra is now 'buy to hold' - I feel like there are more skills required than just financial engineering and cost cutting.  You need sharp operational instincts, or the ability to attract great operators (Buffett did this, I dont give credit to Biglari to be able to... yet).  My understanding of SNS doesn't yet suggest that Biglari is either a great operator or has that ability to recognize/attract great managers.  I give him credit for being great at what he's done in the past (ice cream), but building a long-lasting holding company is a very different animal.

 

 

Having said all that... Like mateo said, I want to like BH.  At the right price, I will probably own a little - but I can't see myself ever feeling great about it.

 

 

Thanks for the very helpful perspectives!

[mateo999]

I also don’t agree with your suggestion of bringing in another CEO to run SNS: that business under Biglari’s lead has performed wonders! I couldn’t be more impressed!

 

I'm less impressed.  He basically introduced a $3.99 menu and kids eat free on the weekends promo amid a massive economic contraction... and held them there.

 

 

[giofranchi]

I'm less impressed.  He basically introduced a $3.99 menu and kids eat free on the weekends promo amid a massive economic contraction... and held them there.

 

Well, just look at same store traffic before and after Biglari took over the management of the company! You surely know how much difficult it is to grow quarter after quarter for 5 years in a row, right? ;)

 

Gio

 

[premfan]

fwiw - i haven't gone to the level that mateo has in researching franchisee performance...

 

 

BH is not expensive, and probably cheap.  Certainly cheap, if you compare it to select restaurant peers, like CRBL.  Very cheap, if you feel confident it can fetch a higher multiple.  EXTREMELY cheap, if you think Biglari has 'above average' capital allocation abilities and ebitda is artificially depressed, because of 'investment' in the franchisee model

 

 

On the flipside, imo there's alot of warts - the kind that don't go away unless you think really highly of Biglari.  Going back to the 'expense' vs 'investment' argument, I think it inherently requires faith in the management team.  It's one thing to say, 'trust Bezos, when he expenses investments'... It's another to say 'trust Biglari, when he expenses investments'... I feel like the folks who believe that EBITDA will return to normal levels are placing a high level of faith in Biglari - fine for you, not for me.

 

Biglari himself certainly has alot of controversy around him.  You could argue that Bezos is controversial, but I dont really think its quite the same.  The concerns here revolve around 1) compensation, 2) ego, 3) related-party deals with his own investment vehicles (lets call it 'lack of transparency'), 4) shareholder fairness esp wrt minority shareholders ('Is the annual ritual of rights offerings beneficial to all shareholders?')

 

Final point, I'd feel much better if Biglari's mantra was '1) buy stuff for cheap, 2) financial engineer or cut fat, 3) sell it for alot more, 4) everyone gets rich (Biglari gets really rich)'.  I think Biglari is capable for that...

 

HOWEVER, if his mantra is now 'buy to hold' - I feel like there are more skills required than just financial engineering and cost cutting.  You need sharp operational instincts, or the ability to attract great operators (Buffett did this, I dont give credit to Biglari to be able to... yet).  My understanding of SNS doesn't yet suggest that Biglari is either a great operator or has that ability to recognize/attract great managers.  I give him credit for being great at what he's done in the past (ice cream), but building a long-lasting holding company is a very different animal.

 

 

Having said all that... Like mateo said, I want to like BH.  At the right price, I will probably own a little - but I can't see myself ever feeling great about it.

 

 

Thanks for the very helpful perspectives!

 

As a long time observer and infrequent contributor to this groundhogs day type of thread.  This might be the best post.  As this same discussion rages to 2019 I will frequently refer to this post as a example of rationality.  Well done sir.

[mateo999]

fwiw - i haven't gone to the level that mateo has in researching franchisee performance...

 

 

BH is not expensive, and probably cheap.  Certainly cheap, if you compare it to select restaurant peers, like CRBL.  Very cheap, if you feel confident it can fetch a higher multiple.  EXTREMELY cheap, if you think Biglari has 'above average' capital allocation abilities and ebitda is artificially depressed, because of 'investment' in the franchisee model

 

 

On the flipside, imo there's alot of warts - the kind that don't go away unless you think really highly of Biglari.  Going back to the 'expense' vs 'investment' argument, I think it inherently requires faith in the management team.  It's one thing to say, 'trust Bezos, when he expenses investments'... It's another to say 'trust Biglari, when he expenses investments'... I feel like the folks who believe that EBITDA will return to normal levels are placing a high level of faith in Biglari - fine for you, not for me.

 

Biglari himself certainly has alot of controversy around him.  You could argue that Bezos is controversial, but I dont really think its quite the same.  The concerns here revolve around 1) compensation, 2) ego, 3) related-party deals with his own investment vehicles (lets call it 'lack of transparency'), 4) shareholder fairness esp wrt minority shareholders ('Is the annual ritual of rights offerings beneficial to all shareholders?')

 

Final point, I'd feel much better if Biglari's mantra was '1) buy stuff for cheap, 2) financial engineer or cut fat, 3) sell it for alot more, 4) everyone gets rich (Biglari gets really rich)'.  I think Biglari is capable for that...

 

HOWEVER, if his mantra is now 'buy to hold' - I feel like there are more skills required than just financial engineering and cost cutting.  You need sharp operational instincts, or the ability to attract great operators (Buffett did this, I dont give credit to Biglari to be able to... yet).  My understanding of SNS doesn't yet suggest that Biglari is either a great operator or has that ability to recognize/attract great managers.  I give him credit for being great at what he's done in the past (ice cream), but building a long-lasting holding company is a very different animal.

 

 

Having said all that... Like mateo said, I want to like BH.  At the right price, I will probably own a little - but I can't see myself ever feeling great about it.

 

 

Thanks for the very helpful perspectives!

 

As a long time observer and infrequent contributor to this groundhogs day type of thread.  This might be the best post.  As this same discussion rages to 2019 I will frequently refer to this post as a example of rationality.  Well done sir.

 

Bobozou and Premfan- I completely agree with you both. 

[giofranchi]

fwiw - i haven't gone to the level that mateo has in researching franchisee performance...

 

 

BH is not expensive, and probably cheap.  Certainly cheap, if you compare it to select restaurant peers, like CRBL.  Very cheap, if you feel confident it can fetch a higher multiple.  EXTREMELY cheap, if you think Biglari has 'above average' capital allocation abilities and ebitda is artificially depressed, because of 'investment' in the franchisee model

 

 

On the flipside, imo there's alot of warts - the kind that don't go away unless you think really highly of Biglari.  Going back to the 'expense' vs 'investment' argument, I think it inherently requires faith in the management team.  It's one thing to say, 'trust Bezos, when he expenses investments'... It's another to say 'trust Biglari, when he expenses investments'... I feel like the folks who believe that EBITDA will return to normal levels are placing a high level of faith in Biglari - fine for you, not for me.

 

Biglari himself certainly has alot of controversy around him.  You could argue that Bezos is controversial, but I dont really think its quite the same.  The concerns here revolve around 1) compensation, 2) ego, 3) related-party deals with his own investment vehicles (lets call it 'lack of transparency'), 4) shareholder fairness esp wrt minority shareholders ('Is the annual ritual of rights offerings beneficial to all shareholders?')

 

Final point, I'd feel much better if Biglari's mantra was '1) buy stuff for cheap, 2) financial engineer or cut fat, 3) sell it for alot more, 4) everyone gets rich (Biglari gets really rich)'.  I think Biglari is capable for that...

 

HOWEVER, if his mantra is now 'buy to hold' - I feel like there are more skills required than just financial engineering and cost cutting.  You need sharp operational instincts, or the ability to attract great operators (Buffett did this, I dont give credit to Biglari to be able to... yet).  My understanding of SNS doesn't yet suggest that Biglari is either a great operator or has that ability to recognize/attract great managers.  I give him credit for being great at what he's done in the past (ice cream), but building a long-lasting holding company is a very different animal.

 

 

Having said all that... Like mateo said, I want to like BH.  At the right price, I will probably own a little - but I can't see myself ever feeling great about it.

 

 

Thanks for the very helpful perspectives!

 

As a long time observer and infrequent contributor to this groundhogs day type of thread.  This might be the best post.  As this same discussion rages to 2019 I will frequently refer to this post as a example of rationality.  Well done sir.

 

Couldn’t agree less!! ;)

 

Gio

 

[muscleman]

Is everyone else here just brushing off mateo999's scuttlebutt?

 

Ha!  I want to like this stock.  I do, and wouldn't have spent so much time researching if I didn't think this was worthwhile to dig into.  I just think the franchise unit commitments are going to prove ephemeral.  Put another way, given the allegations in the lawsuits out there, would you open a SNS?  The Paramus, NJ location should be minting money.  It's owner should be excited about opening its next 3 units, not be bickering in court.  But not to worry-- the jockey has a self-proclaimed better than .900 batting average.

 

I'll point out that, though rare, there are instances of restuarant chains trading/having traded (for decent lengths of time) at the same ev/sales ratio as implied today for SNS... that is, according to my calculus anyway.

 

If Sardar's priority is truly to create shareholder value, why not bring in a real restaurant management team with franchising experience to run SNS separately?  After a yr, spin it off and change the ticker back.  I'll tell you why- because the first thing they'd do would be to rip those ridiculous pictures of Sardar off the wall.  Then order new signage sans "by Biglari".

 

As I said, I'm a bit torn.  Longs will inevitably answer (likely internally, as it seems I don't get many replies): "it's a cash machine funding Sar and Phil's future brilliance", or "it's irrelevant, SNS has a negative implied mkt cap & the debt's non recourse, silly,".  But deep down I think they probably know of COBF members that could do a better job than Sardar has with the same set of assets (I personally would just call JACK and see if they wanted to buy me).  That's why I ultimately passed on the stock.

 

I admire the work you did and I trust you are honest when you bring up these problems. It is backed by the fact here:

http://www.ibj.com/articles/50594-settlement-reached-in-steak-n-shake-franchisee-suit

 

Obviously what you said is true and there are some bitter franchisees. Can you please share more details on your conversations with the franchisees? How much of them did you speak to and how much are planning to back out? When did you speak with them? Do they still plan to back out now that they have reached a settlement with Biglari?

 

Overall, I share the same view with Gio: If the problems of franchisees become material, Biglari will be forced to settle, and things will improve from here. The stock price usually makes the bottom when uncertainty reaches the maximum.

I quickly built a large position around $350 last month because after I applied the "Biglari discount", the stock is still cheap, which implies that there is a good chance that everyone who deeply hates Biglari might have sold out, which means the bottom has reached.

 

For those who kept saying "I hate this, but I would buy at the right price". (Sanjeev and bobozou etc.) Would you mind disclosing your "right price"?  :)

[bobozou]

For those who kept saying "I hate this, but I would buy at the right price". (Sanjeev and bobozou etc.) Would you mind disclosing your "right price"?  :)

 

I'd go 0-2% allocation at current prices (0% meaning, I could just as easily talk myself into passing)

 

2-4% at $300 price (I'm not holding my breath)

 

5% at $200 price (Not holding breath)

 

That's my guess-timate, and I dont think I'd be comfortable giving more than 5% to Biglari, no matter what the price

[thepupil]

NBL, great post, I felt like I was reading my own thoughts with resepct to the work I've done on BH. I'm compelled to buy because, as you point out, the cash and Cracker Barrel cover you.

 

When you are covered by easier to value things like public stakes and cash, your chance of permanently impairing capital is low. It is not nil, but it is low. For example I owned Loews for a few years, I bought at like a 25% discount to SOTP, a large portion of which was cash. 2/3 of Loews major subsidiaries blew up while I owned it (BWP and DO), but I didn't lose money because of the discount, strong cash position, and 1/3 subs did well. Was it a great investment? NO WAY! IT UNDERPERFORMED MASSIVELY! But bad shit happened and the original discount and moderate diversity of assets protected the downside.

 

I see Biglari as potentially similar situation. Buy some cash, some overvalued Cracker Barrel, get Steak N Shake for free and the option that perception of Biglari improves (I perceive him to be a schmuck, an asshole, and an egomanic, my perception has little downside and lots of upside, and I think that is true of Mr. Market) for free.

 

As of now my main hang-up is the riskiness of the proper hedge to the stake in overvalued CBRL (shorting CBRL). I worry that CBRL may try to sell itself to get rid of the pesky public shareholder like Biglari or do something that would realize large losses on shorting CBRL while not leading to commensurate market value gains in BH. I can be very comfy shorting Alibaba when own Yahoo, which is a similar situation where doubts about the capital allocation skills and competence of a CEO create the ability to buy businesses for free.  BABA has zero takeout risk, abundant cheap borrow, endless liquidity, and a strong correlation between YHOO and BABA has been established. I think a long BH / short CBRL has more event risk.

 

So I either need to move on, or wear the Cracker Barrel risk (ie decide Steak n shake for free offsets the overvaluation and tax inefficient way in which CBRL is held and the general Biglari taint; I can't decide if the discount is big enough to hold my nose and buy).

 

 

[Liberty]

 

I want to like this stock. 

 

 

Why??  This is not a value investing perspective at all.  I do not want to like or dislike any stock, as it is irrelevant.  I would think that most value investors want to be impartial on every stock - which is to say not inclined to like or dislike.

 

This seems unfair. You interpret what is said in the way that makes it sounds the worse. Instead, how about giving the benefit of the doubt and interpreting it in the best way?

 

I think he said "I want to like this stock" because he sees a lot of things to like in it, but in the end can't like it because there are things that he dislikes that get in the way. "Like" can be shorthand for the balance result of a carefully researched list of qualitative and quantitative pros and cons about the business.

 

That seems more likely than some irrational predisposition to like a stock.

 

 

Longs will inevitably answer

 

Are you short BH?  This is language typically used by people shorting a security rather than value investors.

 

What?! This is language used by someone who has weighted both sides of the question and is aware of the main arguments against his conclusion. This seems like an unfair attack once again (both about being a "secret short" trying to manipulate others, and about not being a "true value investor" (let's call the value investing police?)).

[mateo999]

Thank you all for the thoughtful responses.  I will respond in a bit more depth when I have some time, but just as a disclosure, I am neither long nor short.  Further, I would buy at some price.  Rightly or wrongly, I include the BH stakes held by TLF in my market cap calculation, and I peg the tax liability on CBRL at around $60mm.

[Liberty]

 

let's call the value investing police?

 

Liberty - I do often think when reading posts/writings elsewhere about various companies, that investors would just focus on value! value! value! and not peripheral issues that are only slightly related to value or unrelated entirely to the value/price of the given company.  Perhaps I should not have let that thought you referenced spill out on the page though.

 

Issues related to management, business strategy, brands/moats, etc, are directly related to value. Value isn't just the numbers on the page, it's also a lot of qualitative stuff. A cable company doesn't have the same value if its run by John Malone than if it's run by some random MBA.

[writser]

Issues related to management, business strategy, brands/moats, etc, are directly related to value. Value isn't just the numbers on the page, it's also a lot of qualitative stuff. A cable company doesn't have the same value if its run by John Malone than if it's run by some random MBA.

 

I agree, but what I believe NBL is trying to point out is that you have to judge how relevant all parts of the thesis are for the final valuation. In case of Lululemon or Green Mountain Coffee Roast you have to be quite sure about qualitative issues because they are pretty much the defining feature of the market price (i.e. if Lululemon had no competitive edge it would trade 75% lower). But when you can buy BH at the price of cash + CBRL stake basically the only important question that you have to ask is: is CBRL fairly valued (or even better: undervalued)? Everything else is worth at least something and whether that is $100m or $300m is 'only' the difference between 40% upside and 60% upside (just jotting down some random numbers).

 

I think that's a refreshing way to look at BH. And I agree that in general in this topic we are too concerned about the menu that SNS is serving, the jet Biglari is flying, the happiness of franchisees, etc. I'm guilty too. Stuff that is fun to research, easy to have an opinion about but extremely hard to judge and it will influence your price target by +-5% at most. What is the last time somebody tried to peg a price on CBRL? The last update in the CBRL topic was posted almost two years ago. Yet everybody has an opinion about Biglari himself.