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Biglari, Fremont, and class b shares


ragnarisapirate
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It seems that BH will be taking on a similar share structure to BRK... only, the B shares won't be able to vote. This could make for an interesting study on what investors actually value their vote at (due to the conversion that will inevitably occur when there is a price disparity in the differing share classes.

 

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7628491-1163-7009&type=sect&TabIndex=2&companyid=11049&ppu=%252fdefault.aspx%253fcompanyid%253d11049

 

It seems that these shares could be used to strengthen his position in the company, provided that he never converts to the B shares. To me, this has the potential to help with acquisitions (remember Burlington and the new split of the B shares of BRK?) I do wonder if when this is implemented into practice, the control issue will hurt intrinsic value more than the potential gains. This adds to the undeterminable factors that cause me to discount the hell out of the stock in the event I make another purchase.

 

Additionally, it seems that they are preparing to up the offer for fremont.

 

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7628490-14564-17866&type=sect&TabIndex=2&companyid=618608&ppu=%252fdefault.aspx%253fcompanyid%253d11049

 

This guy is relentless. It will be interesting so see how this goes over (both at fremont, and in the market).

 

Do you guys know of an instance in which someone has gone after a company so much, so publically, where the shares traded at such a depressed price, relative to the offered amount?

 

 

 

 

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I think this is just nuts!  It's the same criticism that people had over the previous share consolidation...to get the price into triple digits, rather than create any benefit for the company.  They may have removed a tiny number of shareholders holding very few shares, that's about it.  This time, it looks like he's creating the dual class shares to retain control and not dilute the ownership voting structure, if they used shares to acquire other companies.

 

Also, this letter to Fremont is ridiculous.  Buffett never went in and re-negotiated an offer.  He made one and that was it.  Sardar is now saying that they would entertain a higher tender offer for Fremont.  In effect, he's hurting the potential return to his investors.  You can't mimic Buffett and expect the same returns, when you are paying up for everything you are buying.  There's other insurance companies trading for cheaper and the owners would probably entertain a reasonable offer.  He should just go buy one of them, instead of bidding up the price of a company where the CEO is as determined to retain control as Sardar is at BH.  Cheers!

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Like him or not (im not a fan) I think the man deserves an answer from the Freemont board. I think this has more to do with pride than valuation. Buffett made the same mistake with Berkshire though and it worked out for him.

 

I still dont see what some of you guys see in him. Just goes to show that I need to enroll in a few writing classes prior to doing anything public.

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I remember in the Godfather when one of the politicians (Senators?) was giving Pacino a hard time. 

 

So they framed that dude with a dead hooker.

 

Perhaps Sardar has a similar trick up his sleeve for these Michigan scumbags.  Otherwise, a deal will never get done.

 

I agree with Parsad (reluctantly after last night's Vancouver travesty) - time to move on. 

 

On the flip - can't believe that Fremont's board didn't take the offer.  Does Jerry Yang work for Fremont now?

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The letter was simply to force the board's hands.  Either deal with us or your shareholders will eventually deal with you for not maximizing shareholder value.  Now that the letter is public, Fremont will have to at the very least give an answer. 

 

There is a difference though.  People sell to Buffett because they wanted to, not because Buffett kept upping the ante.  Same with Fairfax...Prem will increase the price from any tender offer if he doesn't get the shares needed, but only modestly if he needs to do so.  So far, BH's offer has gone from $24.50 to $29 and now where...$32...$34?  If he's paying with stock, it won't matter as BH stock is overvalued.  But if he pays cash, he's paying too much.  Cheers!

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I was referring to when Buffett said the Berkshire buyback offer came in short. That pissed him off and he bought the company primarily to fire Management. Funny story.

 

----

 

By 1964, he had a relatively large position in the company. When he visited with management they told him they had just sold some more mills and intended to use the proceeds to buy back stock. Buffett told management that he would tender his shares for $11.50. It appeared that he had struck a deal at this price.

 

A few weeks later, Buffett got a tender offer from Berkshire Hathaway - at $11 and three eighths - or 1/8 less than what he had expected. According to Buffett, he had been "chiseled for an eighth." He explained, "I would have tendered my stock. But this made me mad. So I went out and started buying the stock, and I bought control of the company, and fired Mr. Stanton (the company's CEO)."

 

Read more: http://www.benzinga.com/media/cnbc/10/10/529818/buffetts-biggest-mistake-buying-berkshire-hathaway#ixzz19WqmJCGy

 

-----

 

A blind squirrel could poke around the insurance patch and find a cheap nut. This smacks of pride to me but to each their own.

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"I was referring to when Buffett said the Berkshire buyback offer came in short. That pissed him off and he bought the company primarily to fire Management. Funny story."

 

Could you imagine what he d be worth if he didn t do this?

 

I am in awe of his humility in going public with the story.

 

It goes to show you again, that it is not what happens to you or in this case what happens to you when you make a poor choice but how you respond (learn from your mistake + in this case to always buy quality businesses with sustainable competitive edge at a discount i.e. with a margin of safety)

 

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Also, this letter to Fremont is ridiculous.  Buffett never went in and re-negotiated an offer.  He made one and that was it.  Sardar is now saying that they would entertain a higher tender offer for Fremont.  In effect, he's hurting the potential return to his investors.  You can't mimic Buffett and expect the same returns, when you are paying up for everything you are buying.  There's other insurance companies trading for cheaper and the owners would probably entertain a reasonable offer.  He should just go buy one of them, instead of bidding up the price of a company where the CEO is as determined to retain control as Sardar is at BH.  Cheers!

 

Parsad you are in fantasy land if you think potential acquirers should not be open to renegotiating an offering price.

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Also, this letter to Fremont is ridiculous.  Buffett never went in and re-negotiated an offer.  He made one and that was it.  Sardar is now saying that they would entertain a higher tender offer for Fremont.  In effect, he's hurting the potential return to his investors.  You can't mimic Buffett and expect the same returns, when you are paying up for everything you are buying.  There's other insurance companies trading for cheaper and the owners would probably entertain a reasonable offer.  He should just go buy one of them, instead of bidding up the price of a company where the CEO is as determined to retain control as Sardar is at BH.  Cheers!

 

Parsad you are in fantasy land if you think potential acquirers should not be open to renegotiating an offering price.

 

It isn't a fantasy land if you over pay for the company, as it seems Parsad believes Biglari to be doing. But, maybe Sardar sees something there that we don't... I am not going to say it is a bad deal, but, on the other hand, I certainly don't have money invested in Fremont.

 

To address Bookie and Myth, from my own personal perspective, the activism that Biglari embraces is probably what draws people to him. Generally, value guys don't go activist very often, when they do, there can be significant and outsized gains to come about (remember SNS at 3 bucks a share?). While people may not like Biglari, I don't see why anyone would ever want to ignore what the guy does.

 

Additionally, playing devils advocate for a moment, I will ask this: if one is investing in BH for the allocation abilities of Biglari, why would they want to do anything that would risk the company falling out of his hands (such as being against the new share structure). On a similar note, If I was a shareholder of BRK, I probably wouldn't want the people that formerly owned Burlington to vote in the same manner of me... The companies were set up quite differently, and protecting the sanctity of Berkshire would be on the top of my list of things to do. While not traditionally shareholder friendly, it isn't like the shareholders of Burlington (or whatever company BH could go after with the second class of shares with) didn't have a choice in being able to vote in the new parent of their company when they vote on the merger agreement.

 

As I said before (and, on a more serious note), I see this as another tool in the belt that BH wears. Certainly, it could be mis-used, but, could also be used incredibly well. Only time will tell, and, as of now, I am basically on the sidelines... BH ain't cheap.

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It isn't a fantasy land if you over pay for the company, as it seems Parsad believes Biglari to be doing. But, maybe Sardar sees something there that we don't... I am not going to say it is a bad deal, but, on the other hand, I certainly don't have money invested in Fremont.

 

As I read the comment from Parsad, Parsad is speaking from a strategic standpoint not from a valuation standpoint.

 

Now from a valuation standpoint, I need to do more research on FMMH to understand an exact valuation and ownership metrics. He does own his ten percent at a good price.

 

Getting back to analyzing his strategy on the acquisition of FMMH, I personally like that he creates angst in companies with his initial offer. This way we are somewhat assured he is not paying too much. He can work up from there. I just don't want him to get carried away. The question is if he could cut a lot of the rigmarole if he came out with a slightly higher price at the start of negotiations.

 

Just some initial thoughts.

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Assuming that Parsad is right and BH is overpaying, doesn't that speak to how poorly run FMMH with its board? 

 

Why the hold up on a $29 cash offer?  I find FMMH's board much more outrageous than even anything Biglari has done, and we could go on for hours about him. 

 

FMMH board = fidiciary

Obama = conservative

Vancouver = stanley cup contenders

 

BTW - none of these three items are true.

 

 

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sorry about grammar and typos in previous message - lack of sleep.

 

Point - I may be the only one outraged, but I think this is truly disgusting what FMMH's board is doing. 

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Assuming that Parsad is right and BH is overpaying, doesn't that speak to how poorly run FMMH with its board? 

 

Why the hold up on a $29 cash offer?  I find FMMH's board much more outrageous than even anything Biglari has done, and we could go on for hours about him. 

 

[/quote

 

Bronco, it would seem that you are correct.

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As I read the comment from Parsad, Parsad is speaking from a strategic standpoint not from a valuation standpoint.

 

I referenced both...strategy and valuation.  It's never a good idea to up the ante when you are paying fair value.  Plenty of people renegotiate a purchase price, but I've never found it useful to bid up your own offer.  

 

He should go buy Kingsway Financial or some other insurance company.  Fremont is a decent business but by no means a superior insurance business.  While Kingsway was a lousy business, they've made a lot of progress and he could probably get it for a steal.

 

sorry about grammar and typos in previous message - lack of sleep.

 

I'm guessing that Philly loss to Vancouver...restless nights!   ;D

 

Point - I may be the only one outraged, but I think this is truly disgusting what FMMH's board is doing.

 

No, I was equally outraged when Dunning used a member of Congress to guarantee job security.  Although, if I was a shareholder of FMMH, I would be equally concerned about Biglari getting a hold of me now too!  From the frying pan to the fryer!  Cheers!

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Parsad - Thanks for the Vancouver reminder.

 

Although my point with the offer was that it is, at least if memory serves, an all cash offer, so no worry about Biglari and his greedy little hands.  Slam dunk to me.

 

A stock deal would be a different story for sure.

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The board of Fremont could be held liable for failing in their fiduciary duty to maximize shareholder value if they don't entertain Sardar's offer now.  He's got Dunning between a rock and a hard place.  If he gets it for $31, then that's a fair price.  Chances are he's going to have to up it to $32-34 now that they know he is willing to pay.  Cheers! 

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The board of Fremont could be held liable for failing in their fiduciary duty to maximize shareholder value if they don't entertain Sardar's offer now.  He's got Dunning between a rock and a hard place.  If he gets it for $31, then that's a fair price.  Chances are he's going to have to up it to $32-34 now that they know he is willing to pay.  Cheers! 

 

Knowing the history and chest pumping between the two, it is likely the board will either outright reject the offer (saying it undervalues the company) or counter with a much higher offer. Even though the CEO doesn't want to give up the job, he does own a few shares and might not mind a quick payday.

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I don't think he knows what he's talking about.  He's using ROE as his guide, yet Fremont only has 6 years worth of data.  In insurance, you really need to know the underwriter.  If not, then you have to use book value as your guide and be very conservative in the valuation. 

 

In today's market, compared to other insurers that are available, it's not worth anywhere near $35 if you want a good return.  Sardar's $31 offer is fair value right now.  If he can squeeze out better performance from the investments and continue to underwrite well, then it's a fair price for both him and shareholders...but by no means a steal.  Cheers!

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He should go buy Kingsway Financial or some other insurance company.  Fremont is a decent business but by no means a superior insurance business.  While Kingsway was a lousy business, they've made a lot of progress and he could probably get it for a steal.

 

 

Sanjeev, how much do you know about Stilwell? And how confident are you with the stated book value?

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