BH - Biglari Holdings

[TheValueDude]

errr.... what? :o

 

http://www.sec.gov/Archives/edgar/data/93859/000092189514002705/ex991to13da2307428036_121714.htm

 

stock purchase plan not 4 months after the rights offering?

 

Looks like they are buying only up to 62,000 shares.  Cheers!

 

Please let me know if I am wrong. I know that for share buybacks, it is only allowed to buy at most 10% of the past 30 day's average trading volume per day.

In BH's case, it is only 600 shares per day. 62000 shares means buying the maximum allowed per day for 108 days. There are only 260 trading days or so.

 

Could be wrong but I don't think Jefferies is obligated to buy all 62,000. Also this plan can be suspended or cancelled.

[muscleman]

errr.... what? :o

 

http://www.sec.gov/Archives/edgar/data/93859/000092189514002705/ex991to13da2307428036_121714.htm

 

stock purchase plan not 4 months after the rights offering?

 

Looks like they are buying only up to 62,000 shares.  Cheers!

 

Please let me know if I am wrong. I know that for share buybacks, it is only allowed to buy at most 10% of the past 30 day's average trading volume per day.

In BH's case, it is only 600 shares per day. 62000 shares means buying the maximum allowed per day for 108 days. There are only 260 trading days or so.

 

Could be wrong but I don't think Jefferies is obligated to buy all 62,000. Also this plan can be suspended or cancelled.

 

Yeah. That's inline with the buybacks other companies implement. I am responding to Parsad's post that the number 62000 is too small.

 

I am pretty amazed that you find that sec filing. I searched in BH's own company filings in Yahoo finance but i can't find any.

[OracleofCarolina]

errr.... what? :o

 

http://www.sec.gov/Archives/edgar/data/93859/000092189514002705/ex991to13da2307428036_121714.htm

 

stock purchase plan not 4 months after the rights offering?

 

Looks like they are buying only up to 62,000 shares.  Cheers!

 

Please let me know if I am wrong. I know that for share buybacks, it is only allowed to buy at most 10% of the past 30 day's average trading volume per day.

In BH's case, it is only 600 shares per day. 62000 shares means buying the maximum allowed per day for 108 days. There are only 260 trading days or so.

 

Well, if you look at the filing, they bought 1600 shares on the previous 2 days.

[TheValueDude]

errr.... what? :o

 

http://www.sec.gov/Archives/edgar/data/93859/000092189514002705/ex991to13da2307428036_121714.htm

 

stock purchase plan not 4 months after the rights offering?

 

Looks like they are buying only up to 62,000 shares.  Cheers!

 

Please let me know if I am wrong. I know that for share buybacks, it is only allowed to buy at most 10% of the past 30 day's average trading volume per day.

In BH's case, it is only 600 shares per day. 62000 shares means buying the maximum allowed per day for 108 days. There are only 260 trading days or so.

 

Could be wrong but I don't think Jefferies is obligated to buy all 62,000. Also this plan can be suspended or cancelled.

 

Yeah. That's inline with the buybacks other companies implement. I am responding to Parsad's post that the number 62000 is too small.

 

I am pretty amazed that you find that sec filing. I searched in BH's own company filings in Yahoo finance but i can't find any.

 

i use whalewisdom.com. they email alerts day of the filing. i don't use it on a lot of companies, just those i follow closely...

[giofranchi]

stock purchase plan not 4 months after the rights offering?

 

Imo we are in a situation in which stock markets are overvalued, and therefore it is difficult for Biglari to find good investments. At the same time BH stock represents very good value today. Therefore, Biglari is buying more BH stocks through the LF.

 

Of course, you may never know how the market would react to a rights offering: before the issuance of rights BH was trading at 1.3-1.4 x BVPS, now it is trading around BVPS. It is clearly cheaper now and it makes sense to use some of BH’s cash reserve to buy back shares.

 

Once again: what would I do, if I were in his stead? Exactly the same thing! On Monday I am buying more BH. :)

 

Cheers,

 

Gio

 

[writser]

How do you explain away the buying of AIRT and ISIG? Is that something you would do as well if a minority shareholder is annoying you? Or do you think these picks are good value even after Biglari pushed the stock price up 100%?

[giofranchi]

How do you explain away the buying of AIRT and ISIG? Is that something you would do as well if a minority shareholder is annoying you? Or do you think these picks are good value even after Biglari pushed the stock price up 100%?

 

They amount to just a few millions, don’t they? Of course I don’t run a public company… Therefore, I am well aware I cannot be familiar to the handling of any situation Biglari might instead find himself to deal with… I try to answer what I can: major strategic business decisions, important financing matters and large investments. If they are sound, I believe the small things won’t have such a meaningful impact.

 

Of course, as I have always said, I would like to see Biglari in full control of BH: I believe petty distractions like AIRT and ISIG would not occur! ;)

 

Gio

 

[writser]

Not all facts are on the table yet, also BH might still be cheap.

 

However, you keep hammering on about Biglari being a great owner-operator but if this is what it looks like then I'm pretty sure this is not something you would do - no matter how small it is.

[giofranchi]

However, you keep hammering on about Biglari being a great owner-operator but if this is what it looks like then I'm pretty sure this is not something you would do - no matter how small it is.

 

Ok… Now I must admit it… One of my favorite philosophical book of all times is “The Prince” by Niccolò Macchiavelli  ;D ;D

 

Gio

 

[Jurgis]

so this is probably a silly question - but why is the lion fund buying stock instead of BH directly? Is it because Sardar wants to keep voting the stock?

 

Yes, it is because Sardar wants to keep voting the stock. Lion Fund BH stock position effectively kills any chances by activist investors to replace Mr. Big.

 

"Live and let die"  ;)

[DanielGMask]

http://alphavulture.com/2014/12/20/betting-against-biglari/?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+AlphaVulture+%28Alpha+Vulture%29

[Txvestor]

How do you explain away the buying of AIRT and ISIG? Is that something you would do as well if a minority shareholder is annoying you? Or do you think these picks are good value even after Biglari pushed the stock price up 100%?

 

They amount to just a few millions, don’t they? Of course I don’t run a public company… Therefore, I am well aware I cannot be familiar to the handling of any situation Biglari might instead find himself to deal with… I try to answer what I can: major strategic business decisions, important financing matters and large investments. If they are sound, I believe the small things won’t have such a meaningful impact.

 

Of course, as I have always said, I would like to see Biglari in full control of BH: I believe petty distractions like AIRT and ISIG would not occur! ;)

 

Gio

 

 

I am new to the board and reading quietly for some time. I have been a shareholder of BH( smallish 4% position) for a couple of years and think that on a sum of parts basis alone it is clearly undervalued. That said, Mr Biglari's moves are getting more and more erratic and inexplicable from a shareholder's perspective.

His assurances and prognostications in his annual letters and communiques increasingly do not match up with his actions. He increasingly asks for faith in his execution, without providing any proof of the same. We are for example asked to believe that Steak n shake is not significantly profitable because of the investments being made in franchising. We are told that the 'intrinsic value' has grown far in excess of BV. All of this requires a leap of faith, but alas his actions do everything to seed doubts.

 

One can always rationalize anything. And remeber the easiest person to fool is yourself, in Charlie Mungers words. What I see on this board from a few veteran posters is a lot of rationalization. Gio is clearly a believer, but I think part of investing is the willingness to consider a change when the evidence states otherwise that the original thesis is flawed.

 

I am hoping that this 62k share buyback causes some run up in the share price so I can exit slightly higher after holding for nearly 3 yrs. I am increasingly weary that he has reached for 'new shareholder funds' for 2 consecutive years, and observe how flippantly and petulantly he is utilizing that cash. How he is basically dragging in shareholder funds into a public vehicle with low share price rights offerings and then tranmitting those funds into the LF(hedge fund). In effect, forcing his shareholders to invest in his hedge fund through which he can exert control. That is at the very least pushing the envelope on ethical behavior. Even if he did that with operational cash flows that would be one thing, but here he in effect threatens to dilute you unless you fork over more cash then moves it to his hedge fund.

It matters not whether we are speaking of 6 million or 60 million. Someone acting in the shareholders interests does not behave the way Sardar is doing.

I wish the investors who plan to stick around well, but for me I think I will follow from a distance and monitor. WEB investing rules no. 1 and 2 are ringing increasingly louder in my ear.

 

[ragnarisapirate]

I think that we should be asking ourselves, what is the end game for biglari.

 

At this point, it seems like total control... No?

 

If that's the case, then when and how does he get rid of all outside owners?

 

If not, then what is the story?

[merkhet]

Actually, he had another choice. Patience. He chose differently, which provides us with some insight.

[Hielko]

Ironically it's because he so desperately trying to get control that the best thing that could happen to BH is probably that activist investors would be able to gain control and remove him as CEO.

[giofranchi]

His assurances and prognostications in his annual letters and communiques increasingly do not match up with his actions. He increasingly asks for faith in his execution, without providing any proof of the same. We are for example asked to believe that Steak n shake is not significantly profitable because of the investments being made in franchising. We are told that the 'intrinsic value' has grown far in excess of BV. All of this requires a leap of faith, but alas his actions do everything to seed doubts.

 

Well, you should look at Same-Store Sales results in 2013 and 2014 and consider the Number of Company Stores at Year-End is still lower than it was in 2008… Sales have always increased, costs have basically remained the same… Result: a lower profitability than in 2012?! Surely not!… A lower profitability + domestic and international franchisees who have committed to opening a total of 239 units!

I am not saying it will become truth, but I am saying that I like it. And I will judge results as they come.

 

Gio is clearly a believer, but I think part of investing is the willingness to consider a change when the evidence states otherwise that the original thesis is flawed.

 

I will surely change my mind if the evidence requires it. But there simply is no evidence, just because 2014 had been sub par! Business simply doesn’t work that way. And if you know BH, you also realize the reasons why 2014 has not been a good year, and you realize those reasons don’t change the soundness of its long term strategy at all!

 

How he is basically dragging in shareholder funds into a public vehicle with low share price rights offerings and then tranmitting those funds into the LF(hedge fund). In effect, forcing his shareholders to invest in his hedge fund through which he can exert control. That is at the very least pushing the envelope on ethical behavior. Even if he did that with operational cash flows that would be one thing, but here he in effect threatens to dilute you unless you fork over more cash then moves it to his hedge fund.

 

Finally, I don’t agree about rights offerings: my average cost before the rights offerings of the last two years was around 1.4 x BVPS. Today my average cost, after taking advantage of both subscription and oversubscription rights is around BVPS. I like them. They are a great way to increase my investment in BH. And I hope in the future Biglari will make more of them. If he does, I have no doubt my investment will get larger and my average cost will get far below BVPS.

 

Gio

[giofranchi]

Anyone who has communicated/interacted with Buffett, Watsa and Biglari can see the difference. Buffett is incomparable, Watsa is a decent person where as Biglari comes across as crass ( or even thuggish ) compared to the first two.

 

Biglari is smart and has deployed clever marketing strategies to further his interests. He is milking the public markets for all it is worth. I don't expect the company to remain private once he has established full control. It is a lot more fun harassing others than be a pray yourself.  ;D ;D

 

I think that we should be asking ourselves, what is the end game for biglari.

 

At this point, it seems like total control... No?

 

If that's the case, then when and how does he get rid of all outside owners?

 

If not, then what is the story?

 

Shalab,

Have you worked for extended periods of time with Buffett, Watsa, and Biglari?? Come on, this cannot be serious! ;D

 

ragnaisapirate,

the story is to gain control, yes! As it should be. My idea simply is, once he owns a large enough percentage of the company, he will behave rationally. Your idea might be different. Very well! Like I have always said, I will take the evidence as it comes. Right now the sole evidence is BH is a wonderful business led by a man whose entrepreneurial ideas and achievements I admire a lot. ;)

 

Gio

 

[giofranchi]

Surely he wants control of the company.  Just like Buffett wanted (and has had) control of Berkshire and Watsa wanted (and has had) control of Fairfax.  The difference was that Biglari was in his early 30s when he took over Steak n Shake so didn't have enough money to personally buy a huge stake in the company.  Hence the Incentive Agreement which would allow him to buy more of the company over time so he was in a Buffett-like position of control over the company via heavy personal ownership of the company.  While the Incentive Agreement may not be a good policy for a public company, it was his only choice if he wanted to end up in a Buffett-like position in the company.  Get the Incentive Payments so he can buy more of the company over time.  Otherwise, he would have gone back to running a private hedge fund full-time throughout his thirties, just the way Buffett did, and then when he had enough money later down the road to buy a larger position in a public company to then create a Biglari Holdings.  Instead, he created his public company vehicle when he was young (by using the shell of a previously established public company, Steak n Shake) and the trade-off he made is the uncomfortable Incentive Agreement and other actions aimed at controlling the company to run as he sees fit.

 

The Incentive Agreement and some of the other things he does may not be reasonable (in the sense of comporting with fair standards of corporate governance/the expectations of shareholders in a public company/etc.), but his desire to control the company so that he can run it as he sees fit is reasonable.  I know that people are going to say, but he is not treating shareholders fairly/etc. and those things may be true in some sense, but the desire to run the company as he sees fit (i.e. control) is certainly an understandable aim for any entrepreneur.

 

I think this could be obvious to all by now…

 

Except for the fact that business is not shaped like you wish or desire! Business is as it comes… and you don’t have any other choice but to react rationally and as smartly as you can!

 

A huge opportunity like Stake n Shake comes your way… And how should your react?… No, thanks… I am too young… I don’t have enough personal money to control the company, or at least to own a large percentage of it… I will wait… Maybe 20 years from now another such opportunity might come my way…

 

Come on!! He just grabbed the opportunity, like I would have done! Probably, without even thinking about control!

 

Gio

 

[Parsad]

Well, you should look at Same-Store Sales results in 2013 and 2014 and consider the Number of Company Stores at Year-End is still lower than it was in 2008… Sales have always increased, costs have basically remained the same… Result: a lower profitability than in 2012?! Surely not!… A lower profitability + domestic and international franchisees who have committed to opening a total of 239 units!  I am not saying it will become truth, but I am saying that I like it. And I will judge results as they come.

 

Gio, can you explain your explanation?  If number of stores has remained the same between 2012 and 2014, but sales have increased and costs remained the same, then how is profitability lower in 2014 than 2012?

 

I will surely change my mind if the evidence requires it. But there simply is no evidence, just because 2014 had been sub par! Business simply doesn’t work that way. And if you know BH, you also realize the reasons why 2014 has not been a good year, and you realize those reasons don’t change the soundness of its long term strategy at all!

 

Ignore the compensation agreement changes; ignore the two classes of shares; ignore selling the hedge fund to BH and then buying it back to reap the incentive fees; ignore the licensing agreement; ignore the complaints by franchisees; ignore the comments by those that consulted and worked at SNS; ignore long-time shareholders that were there from Western Sizzlin or Lion Fund; ignore Biglari Design and SNS by Biglari crap; ignore the deteriorating performance at SNS; ignore the increasing amount of leverage at BH and its subsidiaries; ignore the stock price which is lower than when I sold it four and a half years ago; ignore all of that which has been oft-repeated to you...doesn't the retaliatory purchase of AIRT and ISIG share prices well above where they were trading concern you in the slightest?

 

Sardar was concerned with saving $600K a year by removing the red coloring on the styrofoam cups after taking over Steak'n Shake, but now you and other shareholders are perfectly fine excusing several million dollars spent needlessly on two companies where BH activists are sitting? 

 

These activists would have had zero chance of replacing him several years ago.  Now they have a moderate chance because of the way he's alienated people.  Whose fault is this?  A complacent board and those shareholders who get sucked into this vortex!

 

Finally, I don’t agree about rights offerings: my average cost before the rights offerings of the last two years was around 1.4 x BVPS. Today my average cost, after taking advantage of both subscription and oversubscription rights is around BVPS. I like them. They are a great way to increase my investment in BH. And I hope in the future Biglari will make more of them. If he does, I have no doubt my investment will get larger and my average cost will get below BVPS.

 

My cost was $87 and then I sold those shares at an average price of $350 four and a half years ago.  That's roughly where the price is today.  In the meantime, my fund went up 78% and that was with me sitting on 30% cash on average.  BH would have to be at $625 today to be at just the same place!  How are the rights offerings looking now?  And more importantly, how are they being spent compared to the past?  Cheers!

[giofranchi]

Gio, can you explain your explanation?  If number of stores has remained the same between 2012 and 2014, but sales have increased and costs remained the same, then how is profitability lower in 2014 than 2012?

 

Well, I meant that profitability cannot be lower… Unless you actually incurred some other costs… And those cost were due to building the infrastructure that is necessary to open 239 new units domestic and international franchisees in future years.

 

Ignore the compensation agreement changes; ignore the two classes of shares; ignore selling the hedge fund to BH and then buying it back to reap the incentive fees; ignore the licensing agreement; ignore the complaints by franchisees; ignore the comments by those that consulted and worked at SNS; ignore long-time shareholders that were there from Western Sizzlin or Lion Fund; ignore Biglari Design and SNS by Biglari crap; ignore the deteriorating performance at SNS; ignore the increasing amount of leverage at BH and its subsidiaries; ignore the stock price which is lower than when I sold it four and a half years ago; ignore all of that which has been oft-repeated to you...doesn't the retaliatory purchase of AIRT and ISIG share prices well above where they were trading concern you in the slightest?

 

Sardar was concerned with saving $600K a year by removing the red coloring on the styrofoam cups after taking over Steak'n Shake, but now you and other shareholders are perfectly fine excusing several million dollars spent needlessly on two companies where BH activists are sitting? 

 

These activists would have had zero chance of replacing him several years ago.  Now they have a moderate chance because of the way he's alienated people.  Whose fault is this?  A complacent board and those shareholders who get sucked into this vortex!

 

Well, BVPS has grown at a CAGR of 20% in 2011, 2012, and 2013, while remaining flat in 2014. The stock price performance has been poor? Yes. Should it be conclusive? No. The strategy imo is still sound. I need to change my mind on the quality of the business as a whole, before deciding to get rid of any investment of mine. I have done so many times in the past. I will do it again in the future. And rest assured BH won’t be an exception!

The fact is what you say about BH doesn’t convince me: SNS is doing fine and with great future prospects, investments are doing fine, net debt is low, and all those other “accusations” sound always the same…

 

My cost was $87 and then I sold those shares at an average price of $350 four and a half years ago.  That's roughly where the price is today.  In the meantime, my fund went up 78% and that was with me sitting on 30% cash on average.  BH would have to be at $625 today to be at just the same place!  How are the rights offerings looking now?  And more importantly, how are they being spent compared to the past?  Cheers!

 

Sincerely, I don’t see what this has to do with rights offerings…

 

Cheers,

 

Gio

[Parsad]

Well, BVPS has grown at a CAGR of 20% in 2011, 2012, and 2013, while remaining flat in 2014. The stock price performance has been poor? Yes. Should it be conclusive? No. The strategy imo is still sound. I need to change my mind on the quality of the business as a whole, before deciding to get rid of any investment of mine. I have done so many times in the past. I will do it again in the future. And rest assured BH won’t be an exception!

The fact is what you say about BH doesn’t convince me: SNS is doing fine and with great future prospects, investments are doing fine, net debt is low, and all those other “accusations” sound always the same…

 

Operating cash flow has decreased over the last four years...free cash flow has decreased as well...capex spending has increased dramatically.  This was what previous management of SNS was guilty of. 

 

Overall leverage at BH is "low", but what is the leverage like at SNS?  Could the increased leverage and interest payments have anything to do with the decreased profitability?

 

Sincerely, I don’t see what this has to do with rights offerings…

 

Because far more capital is flowing into Biglari's pockets now due to the compensation agreement and structure, then they did in the past when the Lion Fund was a part of SNS.  The rights offerings have less impact on a per share basis now than before, as a portion of any gain in book value is paid out in an incentive fee.  But that doesn't concern you, so it shouldn't matter.  Cheers!

 

[augustabound]

the story is to gain control, yes! As it should be. My idea simply is, once he owns a large enough percentage of the company, he will behave rationally. Your idea might be different. Very well! Like I have always said, I will take the evidence as it comes. Right now the sole evidence is BH is a wonderful business led by a man whose entrepreneurial ideas and achievements I admire a lot. ;)

 

Shouldn't he behave rationally at all times regardless of his ownership stake?

 

 

[randomep]

the story is to gain control, yes! As it should be. My idea simply is, once he owns a large enough percentage of the company, he will behave rationally. Your idea might be different. Very well! Like I have always said, I will take the evidence as it comes. Right now the sole evidence is BH is a wonderful business led by a man whose entrepreneurial ideas and achievements I admire a lot. ;)

 

Shouldn't he behave rationally at all times regardless of his ownership stake?

 

Nice comeback!

 

[DanielGMask]

Gio, this investment may prove profitable -I don't know- but I'm confident that in that case you'll certainly end-up being more lucky than correct; facts don't look as compelling as you seem to think they are.

 

There are 4 basic pillars in Buffett's investment philosophy and I'm sure you know them well. Buffett's principles for a superior investment are:

 

1. Favorable long-term economic characteristics.

2. Competent and honest management.

3. Purchase price attractive when measured against the yardstick of value to a private owner.

4. An industry with which we are familiar and whose long-term business characteristics we feel competent to judge.

 

I'm not analyzing all of these for BHI, but on rule number 2, I'll say that Biglari doesn't seem as honest and competent as you think he is. Good luck!

[giofranchi]

Operating cash flow has decreased over the last four years...free cash flow has decreased as well...capex spending has increased dramatically.  This was what previous management of SNS was guilty of. 

 

I think this is misleading at best… Any entrepreneur, certainly a great one like Biglari, is not against capex per se… Instead, he should steer clear of capex which has very low probabilities to give a satisfactory return on the capital employed.

 

One thing is to open unprofitable new stores (Biglari clearly was and still is against it!), another completely different thing is to use capital to build a global franchise network with very high expected future returns!

 

Operating cash flow is lower because BH incurred lots of costs related to the build up of its global franchise network, and not because it has ever opened new unprofitable stores.

 

I am not saying it will surely be a success… Of course, no one knows… But, as an entrepreneur myself, if I had to choose a project in which to invest right now, it will be either the build up of a large insurance organization in developing countries (like Fairfax is doing), or the build up of a global fast-food franchise network (like Biglari is doing).

 

One thing I believe: if that network yields great results, BH will make a lot of money… No matter what anyone says about Biglari’s supposed character flaws!

 

 

as a portion of any gain in book value is paid out in an incentive fee.  But that doesn't concern you, so it shouldn't matter. 

 

This is not fair! I am always worried about costs… I simply believe in paying for performance! When there is the true evidence performance has finally deteriorated and Biglari’s strategy has not worked, rest assured I won’t be so much accommodating! ;)

 

By the way, Sanjeev, when will I ever become a lifetime member of the board?… Shall I first sell my investment in BH?? ;D ;D

 

Cheers,

 

Gio