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SNS Amends Credit Agreement With FTB


Parsad
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I'd be surprised if he does any share repurchases since I think he wants to control the cash rather than return it to shareholders.  The revised agreement also allows him to make up to $10m of investments in marketable securities (ie, common stocks) so my bet is that he pyramids SNS cash into investments in other common stocks (much like WEST's cash was used to buy SNS).

 

wabuffo

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I agree.  I don't think he'll be buying back many shares unless the price falls significantly.  As you said, it's pretty much the same gameplan that he put into play at WEST, and now it will be applied to SNS.  Cheers!

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won't he have to modify SNS's corporate structure to do that (buy common stocks)?  Its not an investment company but I guess the investments would have to become big enough relative to shareholder equity before that would become an issue.  I guess we'll see some more on that too -- ie convert SNS into an investment holdco with a restaurant opco subsidiary.

 

wabuffo

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$10M relative to $250M+ in restaurant operating equity won't hit the threshold where they would have to convert.  Take a look even at WEST where they have not converted.  Long-term investments make up virtually 80%+ of equity there, so I'm not sure exactly what the SEC needs for them to convert...I thought it was somewhere around 70%.  I don't think it will be an issue for SNS for some time.  Cheers! 

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let's hope he doesn't jump the gun and do anything too quickly. I would prefer he sit on the cash in short-term liquid securities until the business is on better footing...one good quarter does not make a home run...

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For what it is worth, when Sardar was asked about share buybacks, he said (and this is loosely quoted; after all, it has been almost 3 months since the meeting!):

 

We have several options for excess cash, one is to expand the brand, another is to acquire other companies in whole, or their stock, the last is to declare a dividend or buy back stock... While we prefer to invest in ourselves, since we know our company better than someone else's, we won't hesitate to invest in other companies... with that said, we won't be able to buy our own stock if the share price has too many more days of performance like we have seen today. (the last sentence is almost verbatim). Keep in mind, that was when the stock was around 12 bucks a pop.

 

Later on in the meeting, he also said that in the future, the company wouldn't resemble it's old self- Steak 'n Shake, the brand will be, but the operating structure of the company won't...

 

After hearing those things, looking at the price of the company, and seeing Sardar's previous actions, I too, think it is obvious that he plans on taking over other companies at some point. However, I don't see much out there (in my mind, anyway) that is cheap in the same way that SNS is. To me, Mr. Market isn't pricing in the great news we have been hearing and he doesn't seem to think that there will be more coming. If we can get to the cash flows of 2006 and get cap ex down to 4-5 million (as Sardar had stated it would be, and forgetting other cost cutting initiatives) we are looking at around 60 million per year in c/f with virtually no debt! Maybe I am a bit to enthusiastic about the future though.

 

I am curious if future purchases will be on the open market, or if they will be tender offers (which, really, is more of a question about the size of companies that Sardar will be getting).

 

 

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I don't think he will be buying shares even at current prices or a slight discount from here.  I think this was simply to allow him flexibility to take advantage of any situation in the future.  I don't know if he has anything in particular in mind right now, but it allows him to be able to act when he has to. 

 

Over the next few quarters, things will be humming at Steak'n Shake and he'll put somebody in place to manage day to day operations as he has done at WEST eventually.  At that point, he'll turn his eye on to the next piece of the puzzle.  This guy thrives on these things and he isn't about to stop anytime soon.  Cheers!   

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I suspect things revolve around SNS now.  As that makes the bulk of the investment in WEST, and an enormous part of the Lion Fund, what he has to say is in the SNS annual report and letter. 

 

I would guess that he's already written a letter to Lion Fund partners explaining what his approach will be.  I don't want to bother him to ask that, but if there are any Lion Fund partners on the board, did Sardar mail out an annual letter to you guys directly this year, that obviously won't be on the website?  Cheers!

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"We have several options for excess cash, one is to expand the brand, another is to acquire other companies in whole, or their stock, the last is to declare a dividend or buy back stock... While we prefer to invest in ourselves, since we know our company better than someone else's, we won't hesitate to invest in other companies... with that said, we won't be able to buy our own stock if the share price has too many more days of performance like we have seen today. (the last sentence is almost verbatim). Keep in mind, that was when the stock was around 12 bucks a pop."

 

On the day of the meeting the stock was about $11.05, West's average price for SNS is $12 and Lion Fund is a little over $16, if Sardar doesn't think it is undervalued by a large degree at 10% lower than West and a large degree by Lion Fund, how will West and Lion make money?

 

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On the day of the meeting the stock was about $11.05, West's average price for SNS is $12 and Lion Fund is a little over $16, if Sardar doesn't think it is undervalued by a large degree at 10% lower than West and a large degree by Lion Fund, how will West and Lion make money?

 

I think intrinsic value is significantly higher.  But at the time when WEST and TLF were buying, the rest of the market was relatively expensive to the discount he was getting on SNS.  Now, it's the other way around.  While SNS remains cheap, many of its competitors, as well as companies in other industries, are trading at a steeper discount to SNS. 

 

So, as he said he has three choices...invest in SNS's operating businesses, buy other businesses, and then repurchase shares or pay a dividend.  I'm guessing while he could buy SNS stock, there are other acquisitions that may be a bigger bargain.  Cheers!

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