Author Topic: BH - Biglari Holdings  (Read 1242712 times)

awindenberger

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Re: BH - Biglari Holdings
« Reply #2730 on: April 14, 2019, 03:06:43 PM »
Thanks for joining the board JJR. I'm curious if you're planning to come to to annual meeting in a couple weeks.

I've been a big fan (some would say cheerleader) of Sardar for many years, but have gotten frustrated at the lack of additional BH share purchases by TLF2 over the past few months, especially once he sold off a 1/4 of the CBRL position.


shalab

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Re: BH - Biglari Holdings
« Reply #2731 on: April 14, 2019, 03:54:06 PM »
Excellent analysis - I made money in SNS and then in BH by jumping in and out during times when the stock was low and then selling when it was high.

I haven't gone near it in recent times despite the cheapness as with the compensation change, total control, it is not clear what the next move is going to be. He can up his compensation from 1 million to 10 million for example or change the water mark with impunity.

The next step in this great robbery is to transfer the BH shares to his name. It will be interesting to see how he does it.

Thanks to the members for the heads up on the archives, which I went through today.  I was wondering if anyone has thoroughly looked at SB's incentive plan for the operating businesses.   The reason I ask is incentives matter and I was wondering how a big buyback or tender (at what I consider less than half of intrinsic value) is accounted/adjusted for in the book value calculation for his incentive plan.   

I believe there is an exhibit somewhere that spells this out, but I've yet to see any comment on it.  SB also changes things over time to his benefit, so we'd have to see the latest iteration.

Like many here, I would normally have zero interest in investing in BH based on SB's past shenanigans, but I will buy anything if I believe it to be cheap enough.  I know famous last words with this company, but he is well below his HWM, and I believe already incentivized to get the price of BH up (more for Lion II than TLF, as CBRL softened the blow of BH tanking in that fund).

gfp

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Re: BH - Biglari Holdings
« Reply #2732 on: April 14, 2019, 04:50:48 PM »
Quote
He can up his compensation from 1 million to 10 million

I feel like he already did that with the $8.4 million annual payment to Biglari Capital..

arcticfox

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Re: BH - Biglari Holdings
« Reply #2733 on: April 14, 2019, 07:19:03 PM »
I have been to 3 BH annual meetings over the last 5-6 years. I was thoroughly disappointed with last years and sold most of the position and keep a tracker position out of curiosity. I remain curious because many of the business decisions and actions have been wise in my judgement yet none of the value creation has accrued to shareholders. I do not support all the comp and shareholder unfriendly decisions. If I look back at my annual meeting notes from last year, much of it was written up in the annual letter this year. I have seen this pattern with him and find it very uncreative. I am not attending but if anyone does attend I would really appreciate it if you shared anything from it. Given the very poor performance of the stock and his lack of action for the benefit of shareholders I think it would be very hard to have it be a positive, upbeat, well attended meeting.

JJR

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Re: BH - Biglari Holdings
« Reply #2734 on: April 15, 2019, 04:53:17 AM »
"I'm curious if you're planning to come to the annual meeting in a couple weeks. I've been a big fan (some would say cheerleader) of Sardar for many years, but have gotten frustrated at the lack of additional BH share purchases by TLF2 over the past few months, especially once he sold off a 1/4 of the CBRL position."


awindenberger, I do not plan on attending the AGM this year.  I may attend next year depending on how things unfold.  You, along with others like arcticfox have been most helpful in getting me up to speed with your meeting notes.  I have now read everything on this site with respect to BH.  You have remained bullish the longest as most have thrown in the towel, but for someone like me, I loved reading the back and forth. 

I hope to keep the discussion going in the days prior to the AGM and I'm hoping someone attends the meeting and brings up some of the points we discuss.   I also read everything you posted on SA and was wondering if you have a good handle on SB's operating incentive plan based on 'adjusted book value".   Do you know how his incentive, based on operations, is impacted with a large tender/buyback at prices well below intrinsic value?   SB is a Henry Singleton fanboy and there is no question a large buyback is hugely accretive to value, but I was also wondering if there is a SB cherry on top of that sundae with additional personal incentives with such a move.




On another note, Spekulatius, I just listened to your first podcast.  I couldn't help but smile when hearing about the very obscure stock you chose to highlight.   I don't own QUCT, but FMBL has been in my bank basket for quite some time.   I have a significant portion of my portfolio in very thinly-traded stocks.  I will buy 50 cent dollar bills wherever I can find them, unfortunately they often come with shareholder-unfriendly non-transparent managements, with some being far worse than others.

In the last couple of years, I've perfected my appraisal rights a couple of times because of unfair buyouts.  Majority shareholders sometimes run roughshod over minority shareholders and believe they could cram down anything without repercussions. 

 In one case, the buyout was for less than half of its true value, so I had to figure out my options as a minority shareholder.   I'd never perfected my appraisal rights before, but this squeeze-out was so egregious, I didn't believe management would want their dirty laundry aired in the Delaware Chancellery Court.   I had to sign an NDA after the settlement, so I can't talk specifics, but they did eventually pay me fair value (134% more than other shareholders received).   What's completely unfair is I was the only shareholder who did this, so smaller shareholders or shareholders who felt they had no recourse, got screwed by the crooks running this company.

I attached a file on another of my holdings.  When you buy such companies, you know full well they could prove to be value traps.  When insiders control a majority of the shares, you don't have many options.  In this case though, I was more than a small thorn in their side and they have now decided to liquidate.

awindenberger

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Re: BH - Biglari Holdings
« Reply #2735 on: April 15, 2019, 07:16:49 AM »
JJR,

I'm definitely going to be at the annual meeting and will be pressing Biglari more than in the past.

The latest move to uncap his operating compensation does lead to a potentially interesting situation whereby Biglari now benefits equally from operating gains and investment gains. Previously he was obviously incentivized to focus more strongly on investments, that is now no longer the case.

What would clarify the value most quickly would be for Biglari to disburse all the BH shares held in TLF(2) to TLF(2) owners. Most of the shares would thus go to Biglari Holdings, which could then retire them.

I'm currently uncertain how that would impact BH book value, and thus Biglari's incentive bonus. I just haven't had as much time as I need to really dive in and think about it recently.

Liberty

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Re: BH - Biglari Holdings
« Reply #2736 on: April 15, 2019, 08:38:15 AM »
The above quote from Liberty is great and all, but the perspective really differs depending upon where you are in these "projects"...

If you are the guy "getting to play Buffett" for a bit, and getting paid to do so, is this not like the greatest thing ever?

On the other hand, if you are the sucker(shareholder) funding this adventure with your capital... well, I'm not so sure they are typically the best investments.

This is just a classic case of an investor needing to do thorough DD or otherwise just stick to indexes or whatever. Feeling bad for the guys running these is like feeling bad for the fringe NHLer. Dude is living the fucking dream. Running one of these has to kind of be the geek equivalent of what it's like being a jock who dreams of playing pro sports. And then makes it. If you can pull it off, good for you. If you are an investor, think with your head, not your heart. Simple as that.

Of course investors need to do their DD, and investing is risky, if anything was a sure bet, everybody would take it.

The idea that I was trying to convey is that trying to accomplish something that is very hard, and doing it in good faith and doing your best, is admirable and the world needs more of that. If it was easy and success was assured, there would be nothing special about going for it and a million others would already be doing it, so you'd add very little value.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

rkbabang

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Re: BH - Biglari Holdings
« Reply #2737 on: April 15, 2019, 09:42:25 AM »
Thanks to the members for the heads up on the archives, which I went through today.  I was wondering if anyone has thoroughly looked at SB's incentive plan for the operating businesses.   The reason I ask is incentives matter and I was wondering how a big buyback or tender (at what I consider less than half of intrinsic value) is accounted/adjusted for in the book value calculation for his incentive plan.   

I believe there is an exhibit somewhere that spells this out, but I've yet to see any comment on it.  SB also changes things over time to his benefit, so we'd have to see the latest iteration.

Like many here, I would normally have zero interest in investing in BH based on SB's past shenanigans, but I will buy anything if I believe it to be cheap enough.  I know famous last words with this company, but he is well below his HWM, and I believe already incentivized to get the price of BH up (more for Lion II than TLF, as CBRL softened the blow of BH tanking in that fund).

Thanks for your excellent posts.  I was a Biglari follower for a long time.  I was a Westin Sizzlin shareholder, then a Friendly's shareholder, then a SNS shareholder.  I was lucky that I followed my instincts and got out shortly after SNS became BH and the compensation plan was announced.  I no longer trusted him and it turned out that I was correct.  I did make a lot of money following Biglari in the early years and searching for info on him is how I found the predecessor to this discussion board.
 

NBL0303

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Re: BH - Biglari Holdings
« Reply #2738 on: April 15, 2019, 11:47:58 AM »

What would clarify the value most quickly would be for Biglari to disburse all the BH shares held in TLF(2) to TLF(2) owners. Most of the shares would thus go to Biglari Holdings, which could then retire them.


That would indeed clarify value, but there is a near-zero, or maybe even a 0%, chance that Sardar unwinds TLF II and does the share distribution in the near future. First, because he has said he is not going to do that and his actions indicate that he is very interested in future payments from TLF II. Even last year at the annual meeting - when he discussed the $8.4 million payments - he said the board will review that in five years and see if they have saved money. In short, this is not going to happen (at least for quite a while).

JJR,


The latest move to uncap his operating compensation does lead to a potentially interesting situation whereby Biglari now benefits equally from operating gains and investment gains. Previously he was obviously incentivized to focus more strongly on investments, that is now no longer the case.



I do not believe this is the case. Sardar can still earn much more from TLF II incentives than anything else. First, there are just a lot more productive assets in TLF II than in the operating company. It is much easier to earn significant investment returns on $800 million than it is to turn around Steak n Shake. There is a much more plausible path, given the operations of BH, to achieving the numbers required for these payments to become significant.

So legally - yes now - he has unlimited potential incentive payments from both. But practically - it will be much easier for him to earn significant payments from TLF II than from BH operations - in my view - at least for the medium-term future.

JJR

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Re: BH - Biglari Holdings
« Reply #2739 on: April 15, 2019, 01:08:10 PM »
awindenberger, I don't think Sardar Biglari transfers BH shares from the Lion Funds back to BH for quite some time, although I do believe it may happen at some point in the distant future.  It depends if his personal BH ownership on an economic basis (not just voting shares) outweigh the benefits of continuing Lion's BH ownership.  It'll be all about how it affects his personal situation and will have nothing to do with BH shareholders.

At current BH prices, he'd be converting what he considers to be silly unrealized losses to the realized loss category, hurting the remaining Lion LP's, and that's especially true for friends and family in TLF.   So he won't be transferring and cancelling BH shares until they are priced much closer to fair value.   In fact, I think he only does it when BH is significantly over-valued and he doesn't believe he can squeeze any more juice out of that lemon.

For all of SB's faults, he's no dummy and he's actually quite clever.   So let's put ourselves in his shoes.   

The CBRL shares and value are real and he's been selling the last few months  And those shares alone more than justify how cheap BH shares are.   I also would not be at all surprised if his past actions were part of some grand scheme to own a lot more BH shares on the cheap.

I've been a buyer the last few months because I think what is now good for SB is now good for BH shareholders.  I know he is looking at the long term end game, but his current record has to be at least a small source of embarrassment.

He takes great pride in beating the market, as he brags about it in almost every letter, but he has had a bad run in the recent past.  It's remarkable how far BH stock price has fallen since he instituted the dual share structure.  That combined with his very poor reputation has produced a bargain BH price.   I doubt his ego will let this stand since he has the capital and control to do something about it.   Of course, if BH shareholders make out well, it will be incidental to the ultimate goal of SB making out well. 

He has stated publicly that "his primary objective is to center on intelligent ways to maximize the intrinsic business value of the company on a per share basis."  I believe that still holds true, but what's left publicly unstated by him is that much of that value will accrue to him personally.

BH received $210M from the sale of CBRL stock (in Lion II), and the unaffiliated non-BH holders comprise 45% of the BH shares (1.39M equivalent B shares).   Last month, Lion II arranged a $160M line of credit in collateralizing their remaining CBRL position.

Lion II had $203M of debt, so the CBRL sales take care of most of that and the taxes due.  With the new Lion II line of credit, plus cash in TLF, BH, and First Guard, there is now plenty of dry powder to initiate a big buyback or tender.   If he decided to offer to take out half of the public float at $175/share, it would cost him $122M (696K shares x $175).   If he went after 2/3 of the non-BH affiliated shares, I believe he would have to offer at least $200/share to shake most of those shares loose, so that would cost him $185M.

SB has stated repeatedly that a low stock price should be welcome news, but unless the company takes advantage of it, it's just a source of irritation to both shareholders and LP's.
 
His letters are copyrighted, so I can't post them, but I can post the many direct Buffett and Berkshire quotes in the 2018 letter.   He equated the Lion Fund’s effective controlling interest in Biglari Holdings to BPL's control of early Berkshire.

Buffett's 1965 letter to limited partners:
“The partnership owns a controlling interest in Berkshire Hathaway Inc., a publicly-traded
security. As mentioned in my midyear letter, asset values and earning power are the dominant
factors affecting the valuation of a controlling interest in a business. Market price, which governs valuation of minority interest positions, is of little or no importance in valuing a controlling interest. We will value our position in Berkshire Hathaway at yearend at a price halfway between net current asset value and book value. Because of the nature of our receivables and inventory this, in effect, amounts to valuation of our current assets at 100 cents on the dollar and our fixed assets at 50 cents on the dollar. Such a value in my opinion is fair to both adding and withdrawing partners."


Buffett 1966 letter to limited partners:
“Because of our controlling interest, our investment in Berkshire is valued for our audit as a
business, not as a marketable security. If Berkshire advances $5 per share in the market, it does BPL no good — our holdings are not going to be sold. Similarly, if it goes down $5 per share, it is not meaningful to us. The value of our holding is determined directly by the value of the business. I received no divine inspiration in that valuation of our holdings….I attempt to apply a conservative valuation based upon my knowledge of assets, earning power, industry conditions, competitive position, etc. We would not be a seller of our holdings at such a figure, but neither would we be a seller of the other items in our portfolio at yearend valuations — otherwise, we would already have sold them.”


Buffett's 1969 letter to limited partners:
“I still sometimes get comments from partners like: ‘Say, Berkshire is up four points —
that's great!’ or ‘What’s happening to us, Berkshire was down three last week?’ Market price is irrelevant to us in the valuation of our controlling interests. We valued B-H at 25 at yearend 1967 when the market was about 20, and 31 at yearend 1968 when the market was about 37. We would have done the same thing if the markets had been 15 and 50 respectively. (‘Price is what you pay; value is what you get’). We will prosper or suffer in controlled investments in relation to the operating performances of our businesses — we will not attempt to profit by playing various games in the securities markets.”


Like Buffett, he wants the share price to reflect its true intrinsic value for his LP's.  So can SB treat 'Biglari Holdings' like Buffett treated 'Berkshire'?   That is ignore the stock price and value it on certain business metrics?   I doubt it.   

BH is NYSE-listed and on average trades ~$1M daily, so this is not some trade-by-appointment stock or Level 3 security.   Also for the past 10 years, the stock price has been used as a proxy for the company's value, so now that it's had a few bad years price-wise, the valuations metrics are now going to be changed? 

I do understand there is a level of unfairness for Lion LP's either withdrawing or adding to the Partnership when BH's valuation is so skewed.   But to arbitrarily assume you know better how to value a security vs. the 'market' is fraught with problems.  I can't imagine an auditor or regulator signing off on SB's carried interest when SB is the person responsible for determining its value within Lion, over-riding BH's market price.   And if he tried pulling a move like Buffett did with Berkshire in BPL, it does absolutely nothing for BH shareholders.

If SB honestly believes the market is dead wrong and BH is stupid cheap, he has it within his power to do something about it.   The market price is low because the company comes with a toxic CEO, so the case could be made BH deserves a lower valuation and the market is not wrong. 

​So t​he best way to more accurately reflect Biglari Holdings' fair value is to initiate a large buyback or tender. The remaining float would be significantly smaller, so SB could peg the BH market price very close to his assessment of fair value.   He could still determine its value, but it would come through a market price mechanism.

If after a tender announcement and a short term price spike, BH reverts once again to being severely undervalued, I don't think SB would be all that upset.   He wins either way, if he gets the price up and it stays up, he makes out well with the carried interest in the Lion Funds, and if the price tanks in the future, he just tenders for more, increasing his personal ownership.   He will not be tendering his shares, so his relatively small BH holding could grow dramatically as he reduces the float to a small fraction of its current size.

While he may have a grand master plan, if it's to be employed, it's likely going to happen this year, while the BH price to value is wider than its ever been​ and he now has the capital​.

Any cat and mouse game with Sardar Biglari is dangerous.  I've stated what a 'rational' capital allocator would do this year, but it's not inconceivable that he instead gives himself a much higher salary or spends a couple of hundred million on an insurance company.