Author Topic: 25% of book value gains above 5% for Biglari?  (Read 40958 times)

Bronco

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Re: 25% of book value gains above 5% for Biglari?
« Reply #10 on: April 30, 2010, 07:15:36 PM »
Shalab - help me out, I think we are saying the same thing - the $40 million increase in book value would equal a $5 million bonus (off a $400 million base).  If I am wrong, my apologies.

Keeping the fairness of $5million aside, the thing that is driving me crazy is the whole "I want to be just like Buffett, except when it comes to compensation".  Well in many ways, that is the whole point.   Buffett is shareholder first, all the time.  He makes mistakes, but is all about shareholder value.

Biglari doesn't give me the same warm and fuzzy feeling. 



shalab

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Re: 25% of book value gains above 5% for Biglari?
« Reply #11 on: April 30, 2010, 07:51:24 PM »
Keeping the fairness of $5million aside, the thing that is driving me crazy is the whole "I want to be just like Buffett, except when it comes to compensation".  Well in many ways, that is the whole point.   Buffett is shareholder first, all the time.  He makes mistakes, but is all about shareholder value.

Biglari doesn't give me the same warm and fuzzy feeling.


I think Biglari said in the annual meeting that those who expect BH to be like BRK will be disappointed. He admires Lampert in addition to Buffett and mentioned that BH will be run like a hedge fund. Kind of makes sense as Pabrai Funds is also named after its founder as was the Buffett partnership.

That said, this agreement will go into effect a year from now, so there is no need to rush selling the stock.

I dont like the AAP tender personally - I would have liked the retained cash to be used for stock purchases as opposed to issuing new stock. The new stock issuance only helps Biglari to pocket more money.


Redskin212

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Re: 25% of book value gains above 5% for Biglari?
« Reply #12 on: April 30, 2010, 08:46:03 PM »
Call me crazy, but isn't it a strange coincidence that all the activity of Sardar's occurred on the eve of the BRK annual meeting/weekend.


Parsad

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Re: 25% of book value gains above 5% for Biglari?
« Reply #13 on: April 30, 2010, 09:08:22 PM »
Here is the math:

1)  Take the example of an increase in book value of $40 million on a $400 million base. That means book value went up 10%.  For his incentive, Sardar would get .25*(10%-5%) = 1.25%.  1.25% of $40 million is $500,000.


You've got the math wrong!  Book goes up 10%...$40M.  His hurdle is 5%...$20M.  He gets 25% of the difference...$5M!  Cheers!
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Parsad

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Re: 25% of book value gains above 5% for Biglari?
« Reply #14 on: April 30, 2010, 09:25:01 PM »
Sanjeev...what are your initial thoughts?

my initial thought is I want a higher hurdle rate and a low
% to Sardar..


We were the only investors to write a letter to the board on the name change...yet he got 90% approval.  I don't like this one iota, but I'm sure it will pass again, as there are too many people on the wagon now.  We will liquidate most of our holdings over time.  I will also be merging the Steak'n Shake message board into the General Discussion board.

I dont expect Biglari to work for free and would like him to measure his compensation by per share increase in value - as is the case with others such as MPIC funds, Pabrai funds etc.

The only problem with this argument is that Steak'n Shake throws off about $15M in free cash flow and $6M in net earnings every quarter.  Book will grow without doing anything at all, as earnings are the equivalent of an 8% dividend yield.   Hedge fund managers don't have that luxury.  Finally, the most important difference between BH and say MPIC or Pabrai Funds is that Sardar has access to a permanent base of capital...there will never be a redemption.  Hedge funds operate on the assumption that their partners will redeem capital at some point and most institute a multi-year lock-up.  In our case, we don't even have that luxury as we have no lock-up!  Cheers!
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kbateman

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Re: 25% of book value gains above 5% for Biglari?
« Reply #15 on: April 30, 2010, 09:25:57 PM »
Yep, $5 million.  I removed my earlier post, since it would be confusing to extrapolate the rest of it off my error.  Turns out doing math at midnight EST is not a good idea.

I think that 5% hurdle will be much tougher than many think it to be right now.

Parsad

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Re: 25% of book value gains above 5% for Biglari?
« Reply #16 on: April 30, 2010, 09:29:57 PM »
I think that 5% hurdle will be much tougher than many think it to be right now.

That hurdle is a piece of cake, as he can use overvalued shares to buy up anything he wants as long as it increases book value.  Shareholders are going to give Sardar the best birthday gift ever!  Cheers!
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Parsad

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Re: 25% of book value gains above 5% for Biglari?
« Reply #17 on: April 30, 2010, 09:39:54 PM »
Whether anyone likes it or not, this move is ABSOLUTELY, SOLELY to prevent anyone from ever taking this company away from him.  He will pour 30% or more of his incentive allocation into the stock, and increase his ownership dramatically over the next couple of decades.  In fact, he could go buy Burger King with stock...increase book by $1B, and he would take home almost $250M!

Now if it were an increase in book value per share, then I would have less of a problem.  But as far as I can see from the SEC filing, the incentive allocation is based on 25% of company book, not book value per share.  Cheers! 
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shalab

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Re: 25% of book value gains above 5% for Biglari?
« Reply #18 on: April 30, 2010, 09:43:23 PM »
We were the only investors to write a letter to the board on the name change...yet he got 90% approval.  I don't like this one iota, but I'm sure it will pass again, as there are too many people on the wagon now.

Sanjeev, you atleast showed integrity in voting against Sardar move and writing him a letter. I voted against the name change but didnt write a letter - should have in hindsight.

I think you are right, I too expect this vote to pass. It will take one year for the new compensation scheme to take into effect - so there is time for one to clear ones position. No need to rush to sell.


shalab

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Re: 25% of book value gains above 5% for Biglari?
« Reply #19 on: April 30, 2010, 09:46:15 PM »

I was mistaken about the SEC filing, the book value is adjusted for share issuance. This is stated in exhibit 2 in the SEC filings.

(ii)    “Book Value” equals the amount of Total Shareholders’ Equity as set forth in the Consolidated Statement of Financial Position of the Company, prepared in accordance with the accounting principles adopted by Company (as set forth in the Company’s Annual Report on Form 10-K for the applicable fiscal year), as of the applicable Incentive Compensation Calculation Date.  Book Value as of the applicable Incentive Compensation Calculation Date shall be determined by reference to the consolidated net income and other comprehensive income of the Company, and appropriate adjustments to such Book Value shall be made for any dividends, shares issuances or buybacks and other factors in accordance with Exhibit A hereto (but Book Value for the next succeeding Incentive Compensation Calculation Date shall not reflect such prior adjustments).  The computations and procedures required to calculate Book Value, including without limitation, any accounting procedures used to implement any adjustments, allocations and other matters, shall be made in such reasonable manner as the Company in good faith shall determine to be appropriate and in accordance with Exhibit A hereto, and shall be subject to the approval of the Governance, Compensation and Nominating Committee (the “Committee”) of the Board of Directors of the Company (the “Board”).