Biglari Flogs RRGB Stake

[Ballinvarosig Investors]

http://www.sec.gov/Archives/edgar/data/93859/000092189510001303/sc13ga107428red_08202010.htm

 

I noticed that net income and cash flow were down quite a bit in the most recent 10Q, maybe he's decided that the business isn't so appealing, or maybe he needs the cash for something more enticing :D Then again, maybe that poison pill that the board have put into the company has turned him off.

[Parsad]

No, I think he was going to make a tender at some point...perhaps after the compensation package was approved.  The poison pill turned him off.  I would not be surprised to see him make a run at Sonic now. 

 

By the way, the changes the new board is making at Red Robin is excellent...reduce capex, pay down debt, buy back shares and grow the business prudently.  They already paid down a good chunk of debt in the last quarter.  Cheers!

[rick_v]

This is very funny. What type of an investor builds a position and then exits it one month later. Would love to hear the explanation on this one...

[rick_v]

Parsad, While I partially agree I believe that if this was the case Biglari could have just accumulated a 5.01% position and not a 6% position. From a capital allocation perspective it seemed as though he wanted BH capital allocated in this position.

 

Also to invest in this manner (either I get a tender or I don't) will never work, last I checked he is not an activist investor he is a value investor?!?

 

To me this just further evidences his lack of actual success as an investor. Aside from reducing Capex @ SNS I have not been impressed one bit. (A 40m$ fund which attributes all its gains to the rise of one stock run by a skilled writer does not translate into a good investor)

 

 

[Parsad]

Parsad, While I partially agree I believe that if this was the case Biglari could have just accumulated a 5.01% position and not a 6% position. From a capital allocation perspective it seemed as though he wanted BH capital allocated in this position.

 

We have no idea.  He may have tried to contact the board and they showed resistance.  We don't know.  But I don't see him taking a position in a company he admired where he would have to make it public, only to sell the stock a few months later.  I don't like what he did with the name change or the compensation package, but let's not sell the guy short either.

 

Also to invest in this manner (either I get a tender or I don't) will never work, last I checked he is not an activist investor he is a value investor?!?

 

They are not exclusive.  Buffett was both early on.  Biglari's role models are Icahn and Lampert. 

 

To me this just further evidences his lack of actual success as an investor. Aside from reducing Capex @ SNS I have not been impressed one bit. (A 40m$ fund which attributes all its gains to the rise of one stock run by a skilled writer does not translate into a good investor)

 

I have all his Lion Fund annual reports till 2009...he's most definitely a good investor.  But I would say his strength is his determination.  Again, I'm one of the people who is least amused by what happened at Biglari Holdings.  At the same time, what he did to turn around Steak'n Shake, including the assistance of his friends, executives and employees, was stunning...pure and simple! 

 

Did anyone else think doing a full tax analysis of the company's past tax filings was a good idea?  Nope, but they raised enough money in one quarter to stave off defaulting on their covenants.  By the second quarter, they had put up $25M in underperforming restaurants for sale and hacked operating costs (excluding capex)!  By the third quarter, they had stabilized same store sales and started gaining some traction.  Less than one year later and the company was enjoying double-digit traffic increases.  Even now you can see how same store sales are in the upper quartile of all restaurant chains.  It was one of the fastest turn arounds I had ever heard or seen.  Cheers!

[rick_v]

When buffet did "workout" scenarios as he liked to call them he went in slowly and would take his time prior to "working them out".

 

What Biglari did here was sell most probably at a loss after he realized he couldn't work out a tender. And this is not the same as an Icahn or Lampert investment because going into the trade if he knew it was just to test the waters he could have accumulated 5.1% and not 6%.

 

My opinion is that he built a position it went against him and like you said, he needs the capital elsewhere.

 

Back to S&S, I am still of the opinion that the only thing he really did was cut Capex. The net income figures today are not that much better than they were a few years ago under previous management even with high capex.

 

Now there is an a nice interview I watched once with Steve Wynn. In it he talks about Capex. I will try to find it it was on Bloomberg I believe. With some businesses as I am sure you agree, and SNS may not be one of them, playing with Capex is like playing with fire.

 

Would love to see those Biglari Annual Reports as well!

 

 

[Parsad]

When buffet did "workout" scenarios as he liked to call them he went in slowly and would take his time prior to "working them out".

 

You're talking about stuff we actually know about.  What about the stuff Buffett did with his portfolio that we don't really know about.  For example, he sold off JNJ because he needed the cash elsewhere, but he went back in and bought it back.  I'm sure he's held stuff that he had plans for, but if the scenario changed, he adjusted.

 

Back to S&S, I am still of the opinion that the only thing he really did was cut Capex. The net income figures today are not that much better than they were a few years ago under previous management even with high capex.

 

Take a look at the ten previous years of history at SNS:

 

http://financials.morningstar.com/ratios/r.html?t=BH&region=USA&culture=en-US

 

If that wasn't a company headed for the abyss, I don't know what was.  Take a look in particular at what Biglari took over in 2008-2009 and the earnings, operating cash flow and free cash flow.  Yes, he took an ax to capex, but it was necessary otherwise they would have defaulted on their covenants.  

 

Also, take a look at page 4 of the 2009 SNS Annual Report attached.  In particular, notice the same store sales and traffic numbers.  Finally, take a look at page 46 of the annual report.  Compare the capital structure of the company on the balance sheet between the year he took over and the year after...extraordinary!  Cheers!

 

 

[Guest Bronco]

Parsad - you sounds like you want to be a shareholder again!

 

Full discloure - I recently bought and sold this stock for a trade but no longer have a position.

[Zorrofan]

We have no idea.  He may have tried to contact the board and they showed resistance.  We don't know.  But I don't see him taking a position in a company he admired where he would have to make it public, only to sell the stock a few months later.  I don't like what he did with the name change or the compensation package, but let's not sell the guy short either.

)

 

Not to sell him short, but he has been hopping around from offer to offer. It seems like he has stopped following through. With SNS he kept at it, same with West, but now it seems like he is making some sort of offer every other day and then nothing.....

 

cheers

Zorro

[Parsad]

Parsad - you sounds like you want to be a shareholder again!

 

I truly want to own Steak'n Shake again.  Just not with Sardar getting his compensation package or the name change.  I love that chain...I think they can do 2000 stores one day, as they've said they will try and hit.  

 

I'll be at the Pabrai Funds meeting in Chicago next month, and I plan on hitting a couple of Steak'n Shakes again.  I've still got all of my free shakes coupons!   ;D  Cheers!    

[Alekbaylee]

all of my free shakes coupons

 

or free calories coupons...  ;D

sorry couldn't resist... ::)

[rick_v]

Parsad,

 

Yes I agree with you. Sardar brought some much needed new blood. The problem I have and it is a huge problem, is that once he changed the name and released his ego for the world to see I began to "Invert always Invert".

 

And here is what I came up with:

 

1) A very skilled actor/writer who basically copies word for word the verbiages, paraphrases, sentences, paragraphs and even WEBSITE of Warren Buffet. He even tries to sound like Buffet... this stuff is very frightening as he is not originally from the mid-west, believe me.

 

2) An individual who knowingly is shoving a compensation structure which is completely unfair and unheard of down the throats of innocent shareholders.

 

3) An individual who was able to blind the eyes of shareholders by effectively exuding a buffetesque like vibe until the time when he reached control. Then he showed his true colors by trying to take over a permanent base of capital which was paid in over many decades by long-term shareholders and make it his forever!

 

4) Someone who as an investor was not able to raise that much money for a Hedge Fund if he had such a great track record and really attributed his stock picking success to three situations:

 

A) Friendly's Ice Cream - Buyout Craze, I believe total profits to Lion Fund were $1.8M Please keep your hats on this is not a crazy amount of money.

 

B) Western Sizzlin - I am sure many of you have done the analysis of the actual growth in book attributed to RIGHTS OFFERINGS as opposed to organic growth in value, if you havent it will surprise you. Nothing spectacular but even I overlooked it initially.

 

C) SNS - The Jury is VERY much still out, taking control of any value play during the period in question would have produced significant results. I bought some shares of DTG during the same period just as a gamble because it looked cheap, spent a total of $16,400 and watched it grow to over $700,000 in that period.

 

Unfortunately, this is how I see BH and Biglari at this stage and he is going to have to prove a lot for many years before I ever consider him to be a successful investor. This is how I measure people in the investment industry. Its not what he did, its how he did it and being a fiduciary myself I can't fathom those types of actions.

 

 

Now I want to make one more important point.

 

When I discovered Biglari and SNS in early 2009, I truly thought I had found an incredible investor and for a while was sold hook line and sinker. I bought shares of SNS and even made some good money, that is how I found this board (never posted on a board in my life). But when the sh** the fan I was so devastated that I had to re-evaluate everything about this guy and I think many of you here need to really think about what has occurred. It's just a total shame on so many levels and its way more than Chutzpah, its Shady pure and simple.

 

And we still don't know how much leverage in the Lion Fund is being used to influence his votes on the upcoming proxy. There are so many variables here.. Biglari just decided to turn into buffet with one liner press releases and a one page website. Honestly, I am just not sure if he has what it takes to run a public company.

 

 

[rick_v]

This is a perfect example of how I feel about Biglari right now:

 

http://classic.cnbc.com/id/15840232?video=1497317094&play=1

 

This is a link to an interview with his buddy (well we don't know anymore they aren't friends? they are? they used to be?)

 

Do you see the intelligence oozing out of his ears?

 

This is a guy many would assume is an incredible investor. Yet he knows little to nothing about his target company absolute BS

[Parsad]

And here is what I came up with:

 

1) A very skilled actor/writer who basically copies word for word the verbiages, paraphrases, sentences, paragraphs and even WEBSITE of Warren Buffet. He even tries to sound like Buffet... this stuff is very frightening as he is not originally from the mid-west, believe me.

 

I agree with you on this, but there are alot of investment managers who try and do the same.  Hell, we manage a fund based on the "Original Buffett Partnership".  Buffett is the bastion for value investing, naturally investors are going to try and emulate him.  By the way, Sardar is from San Antonio.

 

2) An individual who knowingly is shoving a compensation structure which is completely unfair and unheard of down the throats of innocent shareholders.

 

Totally agree with this.  That's why we sold all of our shares.  We also tried to get him to back down from the compensation plan.

 

3) An individual who was able to blind the eyes of shareholders by effectively exuding a buffetesque like vibe until the time when he reached control. Then he showed his true colors by trying to take over a permanent base of capital which was paid in over many decades by long-term shareholders and make it his forever!

 

I've known Sardar for ten years.  There was nothing in my previous years of interaction with him that would have ever lead me to believe he would implement the type of compensation plan he did.  Name change I could see him doing at some point...the compensation plan...nope!  If it walks like a duck, quacks like a duck...it's probably a duck.  He did alot of walking and quacking that was pretty consistent for many years.  It was only in the last six months that things really changed.

 

4) Someone who as an investor was not able to raise that much money for a Hedge Fund if he had such a great track record and really attributed his stock picking success to three situations:

 

A) Friendly's Ice Cream - Buyout Craze, I believe total profits to Lion Fund were $1.8M Please keep your hats on this is not a crazy amount of money.

 

B) Western Sizzlin - I am sure many of you have done the analysis of the actual growth in book attributed to RIGHTS OFFERINGS as opposed to organic growth in value, if you havent it will surprise you. Nothing spectacular but even I overlooked it initially.

 

C) SNS - The Jury is VERY much still out, taking control of any value play during the period in question would have produced significant results. I bought some shares of DTG during the same period just as a gamble because it looked cheap, spent a total of $16,400 and watched it grow to over $700,000 in that period.

 

A)  Wrong!  $3.7M.

 

B)  The real change at WEST was to recapitalize the business and reallocate the cash flow.  He was a success on all counts with a very mediocre restaurant franchise.

 

C)  I think SNS is a huge success, considering it would have entered Chapter 11 six months later.

 

 

Now I want to make one more important point.

 

When I discovered Biglari and SNS in late early 2009, I truly thought I had found an incredible investor and for a while was sold hook line and sinker. I bought shares of SNS and even made some good money, that is how I found this board (never posted on a board in my life). But when the sh** the fan I was so devastated that I had to re-evaluate everything about this guy and I think many of you here need to really think about what has occurred. It's just a total shame on so many levels and its way more than Chutzpah, its Shady pure and simple.

 

I think most of us have.  Like I said, I've known him for ten years and I've been an investor in various companies since 2006.  We had a huge investment in Steak'n Shake.  We are very disappointed.  We were also the only shareholder to write a letter to the board of directors when the name change happened.  Other shareholders overwhelmingly approved it!

 

And we still don't know how much leverage in the Lion Fund is being used to influence his votes on the upcoming proxy. There are so many variables here.. Biglari just decided to turn into buffet with one liner press releases and a one page website. Honestly, I am just not sure if he has what it takes to run a public company.

 

I would say the bulk of the Lion Fund is now in BH.  Cheers!

[Guest Bronco]

Parsad - I know some may have touched on this, but I am confused.

 

Is the following true:

 

1) Lion Fund - GP - owned by Biglari Holdings unless compensation plan turned down

2) Most of Lion Fund invested in Biglari Holdings

3) Biglari - CEO wants to get a hedge fund manager compensation plan based on contribution of hedge fund-GP assets.

4) If BH goes up in share price, Lion Fund collects more fees.  It is a little circular, isn't it?  Why not just take some cash and buy some call options?  It seems to have the same impact, unless I am missing something.

 

As bizarre as this stock and company is, it would make a great case study for a college class.

 

-Bronco

[rick_v]

Parsad reading your response I basically feel we are on the same page. I apologize for the error with Friendly's I don't know why I had the number 1.8m in my mind. Nevertheless just look at the fund that bought them not much more to say.

 

I have another question, how did you meet him 10 years ago? And did you ever invest in the Lion Fund?

 

 

[watsa_is_a_randian_hero]

Parsad - you sounds like you want to be a shareholder again!

I'll be at the Pabrai Funds meeting in Chicago next month, and I plan on hitting a couple of Steak'n Shakes again.  I've still got all of my free shakes coupons!   ;D  Cheers!    

 

When is the meeting?  Any extra time to meet for dinner or a drink?

[Parsad]

I think instead of eliminating conflicts of interest, the new compensation structure probably increased them considerably.  Remember, he also has the right to buy back Biglari Capital for one dollar.  So until then, all operating expenses, etc are being paid for by Biglari Holdings, not Sardar.  

 

It's just an awful decision and it's created such a mess...partly because the board doesn't have the balls to say no and they seem to be conflicted on their duty to shareholders or to Sardar.  He's a determined guy, so this will get pushed through one way or another.  It would make a fantastic case study.  I've always said that, and it becomes a better one with all the recent events.  Cheers!

[Parsad]

I have another question, how did you meet him 10 years ago? And did you ever invest in the Lion Fund?

 

I met him in Omaha during the Berkshire AGM ten years ago.  He was a young guy then, with only a couple of years under his belt at the Lion Fund.  No, I never invested in the Lion Fund, but I would have if I was an accredited investor back then.  Believe it or not, I really like the guy!  It's like a good friend who suddenly went rogue, and is doing something probably not in his best interest or others.

 

The one thing I liked about Sardar was that he kept a low profile in Omaha.  You had so many managers handing out their cards or looking for rich Berkshire shareholders to turn into clients, but Sardar just kept to himself.  He's somewhat introverted, so that's partly it, but he wasn't gladhanding or giving out cards everywhere.  Every interaction I had with him was pleasant.  Even when we discussed the whole compensation package this year in Omaha, he was always completely pleasant and well-demeanoured...even when it became heated! 

 

I don't like his decision at all, but I can't take away from what he did in the past either, or how friendly he had been to me all those years.  To me personally, it's a God-awful shame, because he had the stuff to be one of the great ones!  Still can, but most definitely not with the same shareholder base...they've been scared off!  Cheers! 

 

[Parsad]

When is the meeting?  Any extra time to meet for dinner or a drink?

 

Hi Watsa,

 

Usually, there's a bunch of young managers/investors who meet before the AGM in the hotel bar attached to Carlucci's.  I'll be there if they are doing anything.  I'll find out what time it is and if they are meeting this year, and then post it on the board.  Cheers!

[Christopher1]

Parsad - you sounds like you want to be a shareholder again!

 

I truly want to own Steak'n Shake again.  Just not with Sardar getting his compensation package or the name change.  I love that chain...I think they can do 2000 stores one day, as they've said they will try and hit.  

 

I'll be at the Pabrai Funds meeting in Chicago next month, and I plan on hitting a couple of Steak'n Shakes again.  I've still got all of my free shakes coupons!   ;D  Cheers!    

 

Maybe OT, but I'd like to share my experience with SNS.

 

Over the last month I went two times to the US from Italy (where I currently live), the first one in Chicago for business reason, the second one on the Est coast from Miami to Boston for holiday.

 

I have been a WEST, SNS and BH shareholder. Of course I was very courious to taste the Steakburger, so I went with my Italian friends and collegues to three different locations Bartlett, Hallande and Miami.

 

Definetly we can say that the Steakburger and the shakes are delicious, and the value is incredible. I was really impressed by the Miami location, I arrived there around midnight (it was tuesday) and the store was 3/4 full (around 70 patrons). I have been there one hour and a half in order to observe the store dynamics and the turnover was really fast with many young people. I leaved the store at 1.30 AM and the parking was packed yet.

 

I visited the other two store during the week around 3pm and they were half full. My impression is that the brand is very strong and from an operational point of view SNS is really strong.

 

Best regards

[rick_v]

Parsad, did you two just happen to cross paths at the 2000 AGM or did you meet online prior and plan to meet ? Because i have been going to the AGM for about that long as well and while I met a lot of people just seems like a crazy coincidence lol given the thousands that have been coming to cross paths with Sardar out of all the people there.

 

I just don't think anybody really knows this guy with the actions he has taken. Which have been completely focused on lining only his pockets. And given the fact that you did not invest in the Lion Fund I also think you can't vouch for his success as a Fund Manager. I would love to hear from an actual Lion fund Investor about ease of getting redemptions out and actual net returns based on NAV entries and exits not just highly publicized investor letters.

 

It seems like the type of investors he was going for were very unsophisticated people like an Iranian Poker player from LA is one and an older jewish couple. I don't think he had any serious investors even on a high net worth basis in his fund.

 

 

 

 

 

 

[watsa_is_a_randian_hero]

When is the meeting?  Any extra time to meet for dinner or a drink?

 

Hi Watsa,

 

Usually, there's a bunch of young managers/investors who meet before the AGM in the hotel bar attached to Carlucci's.  I'll be there if they are doing anything.  I'll find out what time it is and if they are meeting this year, and then post it on the board.  Cheers!

 

Oh its in the burbs?  Figured it'd be in the city.  I'm in the city so if its in the burbs I probably won't be able to make it out.

[Parsad]

Parsad, did you two just happen to cross paths at the 2000 AGM or did you meet online prior and plan to meet ? Because i have been going to the AGM for about that long as well and while I met a lot of people just seems like a crazy coincidence lol given the thousands that have been coming to cross paths with Sardar out of all the people there.

 

No, I ran into him there (2001 AGM), just like I ran into Mohnish.  Even this year, at Andy Kilpatrick's party, Sardar was just standing around with Phil.  With all the notoriety, you would think there would have been hoardes of investors surrounding him, but there weren't.  He keeps a pretty low profile in Omaha.  Most people wouldn't know who he is unless they had seen a photograph of him.  Cheers! 

[shalab]

To me personally, it's a God-awful shame, because he had the stuff to be one of the great ones!  Still can, but most definitely not with the same shareholder base...they've been scared off!

 

Agree with this and also that Biglari will pass his compensation package through. He lost his reputation and as someone said, it is like putting the toothpaste back. He is scaring off every company in which he is investing - I like the way Sanjeev dealt with Itex; it was gentlemanly.