gfp Posted February 23, 2017 Share Posted February 23, 2017 I guess I'm less troubled if they lose $500k vs the 2 million dollar quarterly loss run rate I've been seeing. If it allowed BH to repurchase shares because of the negative sentiment from Maxim, I guess it was worth it. But I would like to see him honor the 'maxim will either make history or be history' statement and make a decisive exit one way or another. editor in chief... I would be shocked if Maxim was even run-rate break-even for the last month of the year, much less the quarter. In the grand scheme it doesn't matter anyways. Most of the revenue and expenses have been eliminated from Maxim, so the question is, do they have a shot long term, not whether they make or lose $500k in Q4. Link to comment Share on other sites More sharing options...
awindenberger Posted February 23, 2017 Share Posted February 23, 2017 I'm definitely wondering how he plans to turn it around as well, and looking back, the share price declines that allowed cheap buybacks may have been the only positive from this transaction. I guess I'm less troubled if they lose $500k vs the 2 million dollar quarterly loss run rate I've been seeing. If it allowed BH to repurchase shares because of the negative sentiment from Maxim, I guess it was worth it. But I would like to see him honor the 'maxim will either make history or be history' statement and make a decisive exit one way or another. editor in chief... I would be shocked if Maxim was even run-rate break-even for the last month of the year, much less the quarter. In the grand scheme it doesn't matter anyways. Most of the revenue and expenses have been eliminated from Maxim, so the question is, do they have a shot long term, not whether they make or lose $500k in Q4. Link to comment Share on other sites More sharing options...
CalvinL Posted February 24, 2017 Share Posted February 24, 2017 http://www.biglariholdings.com/letters/2016/2016.pdf Link to comment Share on other sites More sharing options...
EricSchleien Posted February 24, 2017 Share Posted February 24, 2017 Link doesn't work Link to comment Share on other sites More sharing options...
gfp Posted February 25, 2017 Share Posted February 25, 2017 Report is out this morning. He says that Maxim is run-rate "profitable" as of the very end of the year. Cost is $43.9 million so far (after tax benefits of the losses). Maxim lost $10 million in '16. Very few ads in recent issues. More than the wasted money I think the wasted management time / focus is pretty indefensible. We'll see... Link to comment Share on other sites More sharing options...
bookie71 Posted February 25, 2017 Share Posted February 25, 2017 Report is out this morning. He says that Maxim is run-rate "profitable" as of the very end of the year. Cost is $43.9 million so far (after tax benefits of the losses). Maxim lost $10 million in '16. Very few ads in recent issues. More than the wasted money I think the wasted management time / focus is pretty indefensible. We'll see... BUT think of the models he got to meet! Link to comment Share on other sites More sharing options...
gaddis Posted February 25, 2017 Share Posted February 25, 2017 The bottom of page 40 of the Annual Report says that Biglari Capital received $11,514,000 in an "Incentive reallocation for gains on Company common stock." I think we knew this was coming, but surely a payout to Sardar on gains in repurchased BH stock will be challenged by shareholders or regulators. To quote Ballantine (because he said it better than I can), “...When the holder of a share surrenders his rights to the corporation it is obvious that the contract is in reality terminated…While often treated by accountants as an asset, such treatment is for record purposes only, not to evaluate the ‘asset.’ It no more represents a present asset than authorized but unissued shares, being merely the opportunity to acquire new assets if anyone wishes to buy the shares." The repurchased shares are not an asset, yet Sardar is being paid on them as if they were. To me appears either Sardar has violated the NYSE Listed Company Manual 313, ASC 505, and 13(d)(4) of the Exchange Act OR he has found a major loophole that every publicly listed company CEO should attempt to exploit. Has anyone ever seen something like this? Do you think regulators will shut down this maneuver? Link to comment Share on other sites More sharing options...
Parsad Posted February 26, 2017 Share Posted February 26, 2017 As usual, it looks like Biglari did very well for himself with $31.63 million in incentive payment. This is in addition to the $1M salary The incentive reallocations from Biglari Holdings to Biglari Capital on December 31 are presented below. 2016 2015 2014 Incentive reallocation for gains on investments other than Company common stock ........... 20,114 $ - $ 34,406 $ Incentive reallocation for gains on Company common stock ................................................ 11,514 23 - Total incentive reallocation from Biglari Holdings to Biglari Capital .................................... 31,628 $ 23 $ 34,406 I'm not going to waste my time digging into it, but I would assume that the December 31, 2016 year-end wasn't the high watermark for BH stock on a book value per share basis...how did he get a $11.5M incentive fee on gains in the stock? Even if it is solely based on market price within Biglari Capital, I'm still fairly certain he did not pass the high watermark? Anyone know? Cheers! Link to comment Share on other sites More sharing options...
NBL0303 Posted February 26, 2017 Share Posted February 26, 2017 I'm not going to waste my time digging into it, but I would assume that the December 31, 2016 year-end wasn't the high watermark for BH stock on a book value per share basis...how did he get a $11.5M incentive fee on gains in the stock? Even if it is solely based on market price within Biglari Capital, I'm still fairly certain he did not pass the high watermark? Anyone know? Cheers! This is not a general defense of the arrangement or anything, but to answer your question: The price on the vast majority of the Lion Funds' Biglari Holdings shares is $420 - stemming from the June 2015 tender in which they repurchased like 35% of the company's shares at $420 per share. There was not a performance reallocation in 2015 really. And the high-water mark relates to the total return/value of LP interests when a performance reallocation is struck. So since most of those shares were purchased around $420 per share and the share price at year-end was around $470 - that seems to explain it. The other $20 million in performance reallocation obviously stems from Cracker Barrel's year-end share price. Also, just to clarify, the performance fee was entirely within the Lion Fund(s), not the book value/operating company portion of the incentive comp. Link to comment Share on other sites More sharing options...
awindenberger Posted February 26, 2017 Share Posted February 26, 2017 To all those of you that dislike the optics of Biglari getting $11M incentive bonus because the BH stock he bought with the Lion Fund went up did well: What difference does it make if the gains came from BH or another stock? As shareholders the gains benefit us either way. Actually, we could argue that on a risk-adjusted basis, we're better off with Biglari investing the BH the way he did. Since he's in charge, he intimately knows the business and thus knows the intrinsic value better than that of another company. Yes, the optics obviously look bad, but bottom-line you have to ask yourself is, "am I willing to pay Sarder 25% of gains in exchange for his capital allocation skills?" For me the answer is yes, and so I'm not going to get annoyed at him because the undervalued stock he bought was the company he's running. Link to comment Share on other sites More sharing options...
Packer16 Posted February 26, 2017 Share Posted February 26, 2017 How many other CEOs get 25% of the gain in the stock they repurchase? Is this not what the CEO gets paid a salary for in the first place? Packer Link to comment Share on other sites More sharing options...
OracleofCarolina Posted February 26, 2017 Share Posted February 26, 2017 And Sardar gets the 20% carried interest tax rate instead of 39.6% personal income , right ?? What a wonderful mousetrap he has built Link to comment Share on other sites More sharing options...
arcticfox Posted February 26, 2017 Share Posted February 26, 2017 Personally I fall somewhere in the middle and I do not know the right answer regarding compensation. I do know that I do not want my pay criticized and also if you don't like the deal than you can sell the stock. If you don't like the deal, and don't own the stock and read this on page 40 of the 10-K than don't buy the stock. He is not Warren Buffett, he is different and the sooner investors realize that, the easier it is to make a decision. Personally I think many of the criticisms, Some of them justified are priced into the stock. If book value continues to grow I am interested. In the same line of thinking, for him to get the pay he is receiving he needs CBRL to continue doing well (not a guarantee) and he also needs BH to do well. Many would not tie some or all of their pay to just those two stocks. I do wish he would have touched on the buyback of the stock in the letter. I don't like the fact that his dual role (CEO and Hedge Fund Manager) precludes him from discussing his decision to own the stock. I have been to the last 2 annual meetings and I am not sure if I plan to attend this year. I would be curious to know in a circular way (what he thinks of the allocation choices of the Lion Funds most recent purchases). Link to comment Share on other sites More sharing options...
NBL0303 Posted February 26, 2017 Share Posted February 26, 2017 And Sardar gets the 20% carried interest tax rate instead of 39.6% personal income , right ?? What a wonderful mousetrap he has built You have a point Oracle but that is not quite the way it works. There is not actually a tax on carried interest. The way this issue is described in the media drives me crazy. There is no carried interest loophole or special provision, there is just the general tax treatment dating back to oil & gas partnerships and all other partnerships in which some partners put up capital and others put up their labor ("sweat equity") and profits are made - if the sweat equity partners get a share of the profits unequal to the value of the capital they put in (or if they didn't put any in) - they are taxed on those profits just like the capital partners are. In Biglari's case, as with any hedge fund manager, the "pay" he received was actually just in limited partnership interests that were reallocated from other partners (in this case, that partner was Biglari Holdings at least in Lion Fund II). The reallocation of the limited partnership interests is a non-taxable event. On 12/31 say there were 100 partnership units - BH owned 93 and Sardar 10, then on 1/1 BH owned 91 and Sardar 9. Those 2 units is the compensation he received. That reallocation is not a taxable event. What does happen, in regards to taxes, is that he steps into BH's shoes for tax purposes on those 2 units (for both income and expenses). The so-called "carried interest loophole" comes into play because if a lot of the gains emanate from long-term capital gains (as they do in this case) - there essentially will be no tax consequences until those gains become realized and at that point they are taxed as long-term capital gains (or whatever other character would ordinarily be the case based on the holding period/etc.). Tax reform on this issue would likely mean that instead of stepping into the tax character of the limited partners, the general partner would have to either pay (a) ordinary income tax once the investments are realized or (b) in other versions of tax reform, when the reallocation is effected, that would be considered a taxable event at which point the general partner/fund manager would have to pay whatever tax this hypothetical tax reform would create for these sorts of carried interests. Link to comment Share on other sites More sharing options...
awindenberger Posted February 26, 2017 Share Posted February 26, 2017 How many other CEOs get 25% of the gain in the stock they repurchase? Is this not what the CEO gets paid a salary for in the first place? Packer One could argue that many CEOs get more than 100% of the gains on the stock they repurchase, because they buy it back when its overpriced to prop the price up, then leave the company with large exit packages while the stock tumbles well below the repurchase prices. Link to comment Share on other sites More sharing options...
Parsad Posted February 26, 2017 Share Posted February 26, 2017 How many other CEOs get 25% of the gain in the stock they repurchase? Is this not what the CEO gets paid a salary for in the first place? Packer One could argue that many CEOs get more than 100% of the gains on the stock they repurchase, because they buy it back when its overpriced to prop the price up, then leave the company with large exit packages while the stock tumbles well below the repurchase prices. I think you're equating what is common practice by most CEO's with something that is equally irregular. If I see everyone else picking up loot that has fallen off the back of a Brink's truck, then it's ok if I pick up and pocket the $20 that fell out of the the old lady's purse walking in front of me. Cheers! Link to comment Share on other sites More sharing options...
awindenberger Posted February 26, 2017 Share Posted February 26, 2017 How many other CEOs get 25% of the gain in the stock they repurchase? Is this not what the CEO gets paid a salary for in the first place? Packer One could argue that many CEOs get more than 100% of the gains on the stock they repurchase, because they buy it back when its overpriced to prop the price up, then leave the company with large exit packages while the stock tumbles well below the repurchase prices. I think you're equating what is common practice by most CEO's with something that is equally irregular. If I see everyone else picking up loot that has fallen off the back of a Brink's truck, then it's ok if I pick up and pocket the $20 that fell out of the the old lady's purse walking in front of me. Cheers! Sardar isn't exactly doing that Parsad. He's simply saying that he wants to be compensated for the value he's created for shareholders. From 2009 to 2011 SNS/BH stock price blew up, to the point where one could argue it was overvalued. Biglari created this explosion by taking over as CEO and turning SNS around, yet during that period shareholders benefited much more than he did from his great work. Since then he's adjusted that. Its easy to judge him negatively for the compensation package, but lets remember that Buffett charged similar rates to his partners until the point where he had enough money that he was able to dissolve the partnerships and own over half of BRK himself. With ownership at those levels, it was of course more advantageous not to charge anymore, as the extra stock value more than makes up for the lost annual comp. I'm pretty confident that at some point in the future, Biglari's stake will have increased enough that it too will be better for him to remove any incentive pay. In the meantime, those that don't like it are obviously able to sit out this investment. Link to comment Share on other sites More sharing options...
Parsad Posted February 26, 2017 Share Posted February 26, 2017 How many other CEOs get 25% of the gain in the stock they repurchase? Is this not what the CEO gets paid a salary for in the first place? Packer One could argue that many CEOs get more than 100% of the gains on the stock they repurchase, because they buy it back when its overpriced to prop the price up, then leave the company with large exit packages while the stock tumbles well below the repurchase prices. I think you're equating what is common practice by most CEO's with something that is equally irregular. If I see everyone else picking up loot that has fallen off the back of a Brink's truck, then it's ok if I pick up and pocket the $20 that fell out of the the old lady's purse walking in front of me. Cheers! Sardar isn't exactly doing that Parsad. He's simply saying that he wants to be compensated for the value he's created for shareholders. From 2009 to 2011 SNS/BH stock price blew up, to the point where one could argue it was overvalued. Biglari created this explosion by taking over as CEO and turning SNS around, yet during that period shareholders benefited much more than he did from his great work. Since then he's adjusted that. Its easy to judge him negatively for the compensation package, but lets remember that Buffett charged similar rates to his partners until the point where he had enough money that he was able to dissolve the partnerships and own over half of BRK himself. With ownership at those levels, it was of course more advantageous not to charge anymore, as the extra stock value more than makes up for the lost annual comp. I'm pretty confident that at some point in the future, Biglari's stake will have increased enough that it too will be better for him to remove any incentive pay. In the meantime, those that don't like it are obviously able to sit out this investment. Buffett never did this with Berkshire Hathaway. He did it within his partnership, where his partners could pull their capital at their whim. The incentive fee was fair, based on the risks of the entity he was managing. He had grown the assets to over $125M back then, which would have been like $2B+ today...and then accepted Berkshire Hathaway shares in lieu of his existing stake in the Buffett Partnerships. Biglari Holdings is a public company where the capital he is investing is fully, 100% captured capital...there is zero risk that it will ever be withdrawn, because it isn't possible. Sardar had a controlling stake in Western Sizzlin...he just wasn't patient enough to get a controlling stake in SNS like Buffett did with Berkshire Hathaway. Two very different ways in how control was gained! Nothing wrong (legally) with how Sardar did it and he will be richer than all of us combined one day! I just find it was somewhat disingenuous, impatient and not what many shareholders (including myself) had expected at the time. Cheers! Link to comment Share on other sites More sharing options...
awindenberger Posted February 26, 2017 Share Posted February 26, 2017 Buffett never did this with Berkshire Hathaway. He did it within his partnership, where his partners could pull their capital at their whim. The incentive fee was fair, based on the risks of the entity he was managing. He had grown the assets to over $125M back then, which would have been like $2B+ today...and then accepted Berkshire Hathaway shares in lieu of his existing stake in the Buffett Partnerships. Biglari Holdings is a public company where the capital he is investing is fully, 100% captured capital...there is zero risk that it will ever be withdrawn, because it isn't possible. Sardar had a controlling stake in Western Sizzlin...he just wasn't patient enough to get a controlling stake in SNS like Buffett did with Berkshire Hathaway. Two very different ways in how control was gained! Nothing wrong (legally) with how Sardar did it and he will be richer than all of us combined one day! I just find it was somewhat disingenuous, impatient and not what many shareholders (including myself) had expected at the time. Cheers! That is a good point regarding the captured vs uncaptured capital. Biglari may also have been a bit impatient, but on the other hand, it was his management that saved SNS from potential bankruptcy back in 2008/09. I imagine he put in 100 hour+ weeks in that time period, saved the company and saw the stock quickly run up from a low of $60/share to over $500/share in 2011. In the meantime he earned $900k/year for his efforts. Obviously this in not a piddly sum for most people, but we all know that it for a CEO managing a company the size of SNS, it was a bargain. Biglari was underpaid during that period, plain and simple, so its not surprising that he wanted to get paid more. Maybe he should have just quit as SNS CEO and gone back to managing Western Sizzlin, but I think both shareholders and obviously he are better off the way its set up now. Link to comment Share on other sites More sharing options...
racemize Posted February 26, 2017 Share Posted February 26, 2017 Aren't you forgetting all the money he made from his own money and fees off his partners for being invested in those shares? This is some crazy rationalization going on... Link to comment Share on other sites More sharing options...
awindenberger Posted February 26, 2017 Share Posted February 26, 2017 My guess is that within 10 years, he will personally own BH. His compensation is ~4.4% of the market cap of BH. At the moment, he can move the stock price of BH whichever way he wants. e.g:, he can buy a lot of shares on the last day of the quarter or year using shareholder money to improve his compensation. Given the low float, it is particularly easy to do this. Yes, he will be incredibly rich, there is no question about it. He already is. He won't be able to spend all that cash - what is the point of having all the cash that is earned this way? Biglari "could" move the price as he wishes, but he's not actually doing it. On the contrary, his share purchases of BH have only been made at substantial discounts to fair value. The stock closed at $475-480, but none of his purchases have been over $420. Link to comment Share on other sites More sharing options...
awindenberger Posted February 26, 2017 Share Posted February 26, 2017 Aren't you forgetting all the money he made from his own money and fees off his partners for being invested in those shares? This is some crazy rationalization going on... Well ironically, Sardar took on the SNS position in his fund at higher prices (in the $250-350 range). He then became CEO with the stock around $160 in Aug 2008, from where it tanked to $60 in Dec 2008. Thus much of the turnaround was simply to get his position back to even. Am I rationalizing? Of course I am. Isn't that what we all do with every single situation that isn't black or white? I am personally very impressed with Biglari's 17 year record of creating value. Would I prefer if he worked for free? On only accepted $1M a year? Of course. But given his compensation being the way it is, I'm still willing to pay it. Clearly many others aren't, which benefits me because the stock remains undervalued while I continue building my position. Link to comment Share on other sites More sharing options...
skanjete Posted February 26, 2017 Share Posted February 26, 2017 Am I the only one who's missing a crucial piece of information in the annual letter of Biglari? He keeps on recycling the succesfull initial years, but there's no information on the main yardstick : where is the book value per share indicated in his letter? He tries desperately to sound as Buffett, but where is his track record, in terms of book value per share over the years??? Sad. ;-) Link to comment Share on other sites More sharing options...
bci23 Posted February 26, 2017 Share Posted February 26, 2017 I wonder how much biglari even works these days. In the last two years, no new businesses acquired, no new major equity investments, steak n shake/western stagnant, he just spending all of his time on Maxim? Link to comment Share on other sites More sharing options...
Txvestor Posted February 27, 2017 Share Posted February 27, 2017 A bunch of recycled news about his saving of SNS during the throes of the recession and just one line about how they did not execute at SNS their main subsidiary this year! This was the worst annual letter he has written IMHO. And it ironically coincides with his assumption of control of the company. At this point this is an investment ENTIRELY based on trust and hope. Yes it is undervalued but that is irrelevant if you do not trust what Biglari is doing. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now