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Steak n Shake to Acquire Fremont InsuraCorp


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Does SB have enough free time to manage SNS and Freemont? It seems to me he is not totally done with it's SNS turnaround, it would be dumb to waste a good talent because that talent is chasing too many eggs, too soon, too fast.

 

Besides that, is it really a surprise to this board? I was expecting it in 1 year.

 

Now we know where he wants to allocate those 50M$ from SNS :)

 

BeerBaron

 

 

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Does SB have enough free time to manage SNS and Freemont? It seems to me he is not totally done with it's SNS turnaround, it would be dumb to waste a good talent because that talent is chasing too many eggs, too soon, too fast.

 

I'm assuming that he plans to keep current management in place.  If not, this wouldn't be a good move at this time.  There are only so many hours in a day and only so much one person can do.

 

--Eric

 

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If the buyout goes through, SNS will be spending UNDER $13 million in cash; they already own about 10% of the company, are only paying 1/2 the remaining $38.59 million in cash (or $19.3 million), AND will get the $6.75 million in cash that Fremont has on the books... Leaving the cash out of pocket expense for ~$12.5 million.

 

In the past 4 quarters, FMMH earned about 2.56 million, so SNS would be getting a great deal on the company at ~5x earnings (if ONLY the cash of the deal is taken into account). Add back in the company's depreciation of $1.489 million and the multiple gets even better.

 

Keep in mind, that there will be cost cutting, as there will be synergies of the 2 companies.

 

Hell, even I can see that is a good deal!

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I quick look at Fremont's 9/30/09 f/s show that book value is approx. $25.50  ($44.6 million/1.747 million shares).  So Sardar's offer of $24.50 is 96% of book, which probably will not be rich enough.  I am sure Fremont's Board will hire an IB, who will look at comparable purchases and the most recent one (or two if you include Northbridge) is ORH, which we all know was done at a little north of 1.1x book and all cash. So the arb in me says Sardar will have to go to at least $28/share, if not $30.  If he can get it for $24.50 he will have done very well.

 

In any event, I like the move and do not think Sardar will be spread too thin.  He is proving to be an excellent business manager on a day-to-day basis, while focusing on the long term direction of his company at the same time.  The timing of the offer is unbelievable, given the earnings release/reverse stock split last week.

 

I wish him luck, but I don't think he really needs it.

 

redskin

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I'm assuming that he plans to keep current management in place.  If not, this wouldn't be a good move at this time.  There are only so many hours in a day and only so much one person can do.

 

Well Eric, Sardar's kind of like Chuck Norris:

 

- Sardar Biglari counted to infinity...twice!

- Sardar Biglari is what Willis was talking about!

- Sardar Biglari doesn't just break wind, his farts break the sound barrier!

- Sardar Biglari is the reason why Waldo is hiding!

- Sardar Biglari doesn't have just 24 hours in the day, time waits for Sardar Biglari!

 

Anyway, I'm quite surprised to see him try and acquire all of Fremont.  Let's see what the Fremont board and other shareholders have to say about the acquisition...is it a friendly acquisition, or will we see a battle?  Should be another terrific case study.  Cheers!

 

 

 

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A Takeover Proposal for Fremont: The Sweet Taste of Vindication

by Harry Long

 

http://seekingalpha.com/instablog/365592-harry-long/40788-a-takeover-proposal-for-fremont-the-sweet-taste-of-vindication?source=new_post_submission

 

Since June 17, 2008, I have written 11 articles on Fremont Michigan Insuracorp on SeekingAlpha, put up a website called BuildFremont.com, written to the board, met with management, and advocated specific changes in the company to improve shareholder value

 

My goals have been to:

 

I. Strengthen Corporate Governance and Transparency

II. Improve Underwriting

III. Turn Fremont into a beacon for its hometown and the wider Midwest.

 

Today, Steak N Shake (SNS) put out a press release with a proposal to buy Fremont for $24.50 per share (finance.yahoo.com/news/The-Steak-n-Shake...).

 

If I had to imagine, I would guess than any acquirer would see much of what I pointed out in multiple articles:

 

I. Fremont has a clean balance sheet with a high quality investment portfolio, a headquarters property owned outright, and no debt.

II. The company has strong reserving.

III. Underwriting might be improved with an expansion to Indiana.

 

I have always thought the company would make a wonderful vehicle for a shrewd acquirer. In a 7/01/2008 SeekingAlpha article, I deemed it, "A Potential Takeover Target."

 

Unfortunately, Fremont never did adopt many of my suggestions, such as a sale-and-leaseback of its headquarters building, or an expansion to Indiana where the company might enjoy better pricing.

 

In an 10/28/2008 SeekingAlpha article I even advocated that Fremont Management "should hire an investment banker to solicit offers for the company and run a fair process which maximizes the purchase price of the company."

 

I suppose I should feel a sense of schadenfreude. Unfortunately, people often don't listen until it's too late. Many managements view people who propose innovative solutions to difficult business problems as thorns in their side at best, and enemies at worst.

 

In reality, when shareholders are viewed as owners, rather than some distant, faceless mass of people, it fosters a sense of collaboration, rather than distrust. Ideas are shared openly, companies prosper, they expand, hire more people, and communities, shareholders, employees, customers, and society itself, prospers.

 

At Fremont, as in America, either we all win, or we all ultimately lose.

 

Stay tuned, there are more Fremonts out there just waiting to be found.

 

 

 

Disclosure: Long FMMH

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THE STEAK N SHAKE COMPANY

36 SOUTH PENNSYLVANIA STREET, SUITE 500

INDIANAPOLIS, INDIANA 46204

TELEPHONE (317) 633-4100

FAX (317) 633-4106

 

 

 

 

December 21, 2009

 

 

 

 

 

 

Board of Directors

Fremont Michigan InsuraCorp, Inc.

933 East Main Street

Freemont, Michigan 49412

 

 

Dear Board Members:

 

 

The Steak n Shake Company (''Steak n Shake") currently owns 9.9% of the outstanding shares of common stock of Fremont Michigan InsuraCorp, Inc. ("Fremont"). Steak n Shake hereby declares its willingness to acquire 100% of the issued and outstanding shares of common stock of Fremont that it does not already own, through an appropriate acquisition entity by tender offer and/or merger (the "Transaction"), for $24.50 per share (the "Purchase Price"). 50% of the Purchase Price would be paid in cash, and 50% would be paid in shares of the common stock of Steak n Shake. Stockholders of Fremont would be given an opportunity to elect to receive the Purchase Price in cash, shares of Steak n Shake, or a combination thereof, so that the consideration will be subject to proration if the elections do not equal 50% cash and 50% stock. Our offer is not subject to any financing contingency.

 

We believe our proposal provides the best means for stockholders of Fremont to realize the value of their shares by allowing them to exchange their shares for cash and/or for a more liquid security of a diversified holding company that trades on the NYSE. As you know, unlike Steak n Shake’s shares, those of Fremont trade infrequently and in very little volume on the OTC Bulletin Board.

 

Our proposal is subject to obtaining all necessary regulatory approvals and a waiver from Fremont on its anti-takeover provisions.

 

Furthermore, we want all members of the management team, other than the CEO, to remain in place. We are willing to discuss employment agreements with the other members of management because we believe they will play an integral role in the new ownership structure.

 

We welcome meeting with members of Fremont’s Board or its representatives as soon as is practicable.

 

 

 

  Sincerely,

 

/s/ Sardar Biglari

Sardar Biglari

Chairman of the Board

 

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Harry...since you've met with some members of the FMMH board, what's your take on the letter from Biglari where he proposes to keep management in place, less the current CEO?

 

-O

 

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Though I will have additional comments in due course, I thought I might provide my initial reaction to the news that Steak n Shake is attempting to acquire Fremont in a cash and stock deal. 

 

I previously wrote about Fremont in this piece that may be found here:

 

http://www.chanticleeradvisors.com/files/757505/A%20Find%20in%20Fremont%20-%20An%20Update.pdf

 

In it I wrote, "We hazard a guess that Mr. Biglari, mindful of the pitfalls of partnering with the management of an insurance company that you do not fully support, has chosen Fremont as a company in which he hopes to be a partner, not as the target of turnaround effort needing new management."

 

It would seem, not withstanding Mr. Biglari's probable desire to be CEO, that that is indeed the case. 

 

As you might expect, as a holder of the shares of FMMH for some time, I view the price offered of $24.50 per share to be grossly inadequate for a well reserved, niche underwriter.  The offer is obviously below the $25.54 tangible book value at 9/30/09, which says nothing of the possible results since then. 

 

More to come,

 

Matt

 

 

 

 

 

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I actually thought that Biglari might go the insurance portfolio management route, i.e. making deals with insurance companies to manage the parts of their portfolios dedicated to equities, sort of like the Stillwater people.  But it looks like he wants to own his own insurance company, having some influence on the quality and stickiness of the float he will manage going forward.

 

I like this deal a lot.  However, I am hoping that if we succeed in purchasing Fremont, Mr. Biglari gives some consideration to selling his asset management business to us as well (at a fair price, of course).  I would rather not have Fremont's portfolio managed through the Lion Fund, with SNS shareholders having to pay 1-and-20 for Mr. Biglari's capital allocation skills.  If he does this, he will truly get long term partners in SNS.

 

And I will second Shalab.  Investors in the target company should keep in mind that FMMH as a stand alone company is worth only a very modest premium to book (if at all) and that they are getting stock in a company that is worth much more than the market price (even with the 50% pop since the last quarter release).

 

Looks fair to me.

 

Disclosure: I own SNS and recently added more to it.

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I finally woke up (late to the game) and realized the potential of Sardar about a month ago and bought at 11.5 with a very small position, I thought it was around fair value at the time but decided I wanted exposure to Sardar.  Now it is at a pre-split equivalent of $17, I'm beginning to get concerned on valuation.

 

How do other members feel?

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I believe right now that the animal spirits are in charge.

 

I mae a similar move to you...buying 100 shares around $11 (increased to 120 after the split announcement) to just keep it on my radar. 

 

I would be a seller rather than a buyer at today's price.  However, because I have such a small position, I am just wathcing.

 

Although many are impressed by SB (and to date you can't deny) - I am still reading/learning/etc ... I like to really understand a company before going in big.

 

 

 

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I believe right now that the animal spirits are in charge.

 

I mae a similar move to you...buying 100 shares around $11 (increased to 120 after the split announcement) to just keep it on my radar. 

 

I would be a seller rather than a buyer at today's price.  However, because I have such a small position, I am just wathcing.

 

Although many are impressed by SB (and to date you can't deny) - I am still reading/learning/etc ... I like to really understand a company before going in big.

 

 

 

 

yeah, same here. I'll have to do more research on this before I decide to buy more/hold/or sell.

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they are getting stock in a company that is worth much more than the market price (even with the 50% pop since the last quarter release).

In fairness, you wouldn't own SNS unless you thought it was undervalued. Likewise, the same applies for FMMH stockholders.

 

True.  That's why I disclosed that I own SNS.  You should take my opinion, Matt Miller's opinion, and Harry Long's opinions with a grain of salt.

 

The question is regarding the fairness of the deal, and obviously there will be some wrangling on whether the price is fair and what the "fair value" of SNS and FMMH are since the deal will involve distributing SNS stock to FMMH shareholders. 

 

I suppose I'm really just expressing my opinion that I don't want Sardar to overpay for FMMH and that I disagree with FMMH shareholders that believe that the deal as proposed is "grossly inadequate."  Of course, I completely understand their stance, especially large shareholders such as Chanticleer.

 

We'll see what happens.  I'm confident that the right outcome will be reached and that shareholders on both sides will be happy with the deal.

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I finally woke up (late to the game) and realized the potential of Sardar about a month ago and bought at 11.5 with a very small position, I thought it was around fair value at the time but decided I wanted exposure to Sardar.  Now it is at a pre-split equivalent of $17, I'm beginning to get concerned on valuation.

 

How do other members feel?

 

I think we are heading well into overvalued territory now.  FFH trading at this value would be well over $500.  FFH has alot going for it that Sardar does not yet have including 25 years in the insurance biz, bench depth, and 35 years in the investment biz.  I own 50 post split shares of SNS.  Not selling or buying.

 

Dont like the insurance idea though.  It seems to me that Insurance will introduce a cyclical element to SNS.  Basically, I can buy it below book everytime there is a major insurance event, so why buy it now?

 

 

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I believe right now that the animal spirits are in charge.

 

I mae a similar move to you...buying 100 shares around $11 (increased to 120 after the split announcement) to just keep it on my radar. 

 

I would be a seller rather than a buyer at today's price.  However, because I have such a small position, I am just wathcing.

 

Although many are impressed by SB (and to date you can't deny) - I am still reading/learning/etc ... I like to really understand a company before going in big.

 

 

 

 

yeah, same here. I'll have to do more research on this before I decide to buy more/hold/or sell.

 

Six months ago I was telling people Sardar can walk on water. As true as that has been, I'm not too impressed with SNS current market price. If Sardar truly wants to build a compounding machine there will be opportunities in the future where Mr. Market loses interest and we can pick up cheaper (price/iv) SNS shares.

 

I've bought SNS below $4/share and as high as $8/share but I don't own any at the moment. I wouldn't be angry if I was forced to hold SNS, but I'd rather hold other cheaper securities at the moment.

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Overvalued isn't necessarily a bad thing.  Sardar can use the shares and acquire businesses trading at a signficantly larger discount.  Imagine if Fairfax had used its shares in 1998 and acquired C&F and TIG, and they had very few problems...we would never have seen the incredibly low prices we saw in 2003. 

 

The problem isn't if the stock is overvalued...it's always going to come down to whether Sardar is making good capital allocation decisions...FMMH at $24.50 is cheap if he gets it.  I would be more concerned if he was doing things like buying a business like Steak'n Shake at $15 again as he did right in the beginning when management was slowly running it into the ground!  Cheers! 

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I think Sardar is making all the right moves. As Parsad said he is using his not so cheap shares as a currency to buy a decent business. He is trying to close the gap on intrinsic value by trying to buy something fairly cheap or fairly priced.

 

I feel like I have missed the boat and this is a great example of Warrens good business at a fair price. I will watch and see and when it gets closer to a fair price will likely be picking up some shares.

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