Groveland Capital: Enhancing Shareholder Value At Biglari Holdings

Groveland Capital: Enhancing Shareholder Value At Biglari Holdings


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Groveland Capital’s presentation on enhancing shareholder value at Biglari Holdings.

Biglari Holdings Overview

  • In 2008, Sardar Biglari became Chairman and CEO of Biglari Holdings Inc. (formerly Steak n Shake).
  • Biglari Holdings Inc. (“BH” or the “Company”) is an Indiana corporation that employs 23,130 persons. It is a holding company engaged in a number of business activities, including restaurants, media and insurance.
  • The Company’s restaurant operations are conducted through two different concepts: Steak n Shake and Western Sizzlin:
    • Steak n Shake operates 416 company-operated restaurants and 124 franchised units, and
    • Western Sizzlin operates 4 company-operated restaurants and 71 franchised units.
  • BH acquired Maxim in February 2014 and First Guard Insurance in March 2014.
  • In fiscal 2014, BH generated revenue of $793.8MM and operating income or EBIT of $14.3MM.

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Executive Summary: Change Is Necessary

We believe that replacing the incumbent board of directors will start a process that drives significant shareholder value. The new board will start by addressing chronic corporate governance problems and will hire a new CEO to establish the right operational focus. We believe that Biglari Holdings needs to be reformed now more than ever for the following reasons:

  1. The Company’s stock price has underperformed its benchmark indices and peer group.
  2. The Company’s operating businesses have experienced a significant deterioration in their financial performance.
  3. The Company’s CEO has received outsized compensation despite poor performance.
  4. The Company’s Board has demonstrated poor corporate governance practices.
  5. The Steak n Shake brand and franchisee network are at risk.

Our goal is to work with the employees of BH to create a stronger Company that delivers shareholder returns now and over the long-term. With the right operational focus and improved corporate governance, all Company stakeholders can greatly benefit.

Some History: Declining Operating Income

  • Since fiscal 2011, BH has lost focus. Its operating performance has steadily declined.
  • The Company’s operating income has fallen from $52.5MM (a 7.4% margin) in fiscal 2011 to $14.3MM (a 1.8% margin) in fiscal 2014, a decrease of 72.8%.

“Sardar Biglari is the most secretive and unapproachable executive that I have ever worked with. He has created a culture of fear and intimidation where every level of the Steak n Shake organization is inefficient and underperforming because employees are afraid to ask questions—disagreement with Sardar Biglari is not allowed.” – Former BH Employee*

Biglari Holdings

Biglari Holdings’s CEO Has Received Outsized Compensation Despite Poor Performance

Outsized Compensation

Mr. Sardar Biglari stated: “I have long believed that pay should be tied to performance. What we too often learn in Corporate America is Pay-for-Failure because of asymmetrical payouts through which executives win regardless of whether their shareholders win or lose.” (Source: Chairman’s Letter Dated 12/09/2010)

Biglari Holdings

Aug 5, 2008: Sardar Biglari appointed CEO

Jun 19, 2009: CEO compensation increased from $280k to $900k. The BH board stated that, “Mr. Biglari does not have an employment agreement and will not participate in any bonus program or receive any stock or stock option grants.” (Source: BH Form 8-K filed 6/25/2009)

Apr 30, 2010: The BH board entered into the Incentive Bonus Agreement with Mr. Biglari (approved Nov. 5, 2010)

Cap on Payments Under Incentive Agreement Undermined

  • On April 30, 2010, Biglari Holdings purchased Biglari Capital Corp. (“BCC”), the General Partner of The Lion Fund, L.P. from Mr. Biglari for $4.2MM.
  • In connection with the acquisition of BCC and in recognition of Mr. Biglari’s increased responsibilities in overseeing both the fund and restaurant businesses, BH entered into the Incentive Bonus Agreement with Mr. Biglari, subject to shareholder approval for purposes of Section 162(m) of the Code.
  • On July 6, BH called a Special Meeting of Shareholders. On the agenda was the approval of the April 30th Incentive Bonus Agreement to Mr. Biglari and other matters.
  • On August 10, after pressure from shareholders, BH withdrew its Proxy for the Special Meeting of Shareholders and stated the following in a Company issued press release:
    • “Biglari Holdings Inc. (NYSE: BH) announced today that as a result of misinformation in the investor and analyst communities, regarding the incentive bonus agreement submitted for shareholder approval, the Company wishes to address these errors.”*
    • “Therefore, Biglari Holdings has decided to delay the special meeting of shareholders originally scheduled for August 24, 2010, and will utilize the additional time to provide revised proxy materials to address questions its shareholders raised on the agreement.”*

See full PDF below.

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  1. Biglari is a huge crook. The corporate governance practices at Biglari Holdings
    continue to contain some of the most blatant abuses since the days of Enron. What a joke that this guy can pay himself more than
    100% of the company’s operating income over the past two years (more
    than $57 million on a market cap that has ranged between $600-800 million),
    while the stock has significantly underperformed any benchmark, while only 1% of the outstanding stock in the company and
    is not the founder (he simply got on the board, took control, and renamed it
    after himself). He blatantly broke a
    valid contract related to his incentive agreement (his previous incentive
    compensation agreement required shareholder approval, if it were
    to materially increase his benefits) and transferred all of the company’s
    marketable securities into the Lion Fund (i.e. the hedge fund he personally
    runs), and removed the previous $10 million performance cap without shareholder
    approval. He also put in place a licensing agreement for his own name
    (which is valueless) to pay him 2.5% of revenues, if there were
    to be a change in control. He is now issuing additional shares through
    rights offerings that require shareholders to make additional stock purchases
    of BH at discounts ($250 per share) to avoid dilution, then taking the proceeds
    and repurchasing the shares at $400 to hold in a fund that he hived from the company to increase his
    control and fend off Groveland. The moves continue to get more and more beyond belief.

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