Notes from Biglari Holdings’ annual general meeting for the year ended December 21, 2014.

Notes from Biglari Holdings’ annual general meeting

Note: Nothing should be taken as a direct quote. Some of the numbers may be wrong as it was difficult to hear a few times. I also missed a few questions and left at 5:45pm.

  • Introduced directors
  • Swenson introduced and makes a statement
    • It’s clear corporate governance must be reformed
    • We don’t expect to win any seats this year
  • Preliminary report on voting results
    • Biglari Holdings slate has received plurality of votes cast
    • Final tabulation will be revealed in an 8K in 2?5 days
  • Pre? Q&A remarks
    • Biglari Holdings began to invest in Steak ‘n Shake (SnS) in early ‘07
    • Realized there were serious problems by late ‘07
      • Last 3 months of ’07, same store sales (SSS) were down 13%
      • BoD puts SnS up for sale and received offers at a discount to market price
    • August of ’08 SnS debt covenants were violated and the co. was quickly losing cash
      • SnS becoming a footnote in the history of brand names
      • Sardar tried to convince interim CEO to stay longer but he saw the writing on the wall
      • Potential CEO turned down a generous offer
      • Impossible to get sale?leasebacks done in the midst of financial crisis
    • Biglari Holdings had to make drastic changes at the company
      • Eliminated products/simplified the menu
      • Reduced core menu item prices by 24%
      • Simultaneously improved quality
        • You cannot simply take one decision, apply it to another chain, and have it work.
        • It isn’t profound enough to change one element? you must go into it area by area and make changes
      • Red Robin was better able to withstand problems because of superior cash inflows
    • Biglari Holdings and Cooley do not want to reinvest the cash from operations into restaurants.
      • The holding co. is organized to be in any business, run for the investors
    • First co. Biglari started took $15K
      • ‘Not like we raised billions and got to this position.’
      • Came up from nothing by following a set of principles
    • BH Principles (listed in a slide deck):
      • Maximize intrinsic value
        • Not EPS/operating income
        • The most important of all of the principles here
        • Turning around businesses will create outsized returns but with lumpy results
      • Own businesses
      • Capital allocation advantage
        • We can look at companies in other industries
        • We can put capital anywhere that offers the largest return per unit of risk
        • If First Guard (FG) is able to reinvest their cash, that’s quite alright with us.
      • Centralization of capital
        • Allocation decisions made by Biglari Holdings, not a committee
        • Don’t have layers upon layers of management
        • In investing, you need central decision making for outsized returns
          • There are exceptions to this rule but this is most often true
      • Outperforming and underperforming businesses are interesting
        • First Guard is an outperforming business
        • Maxim is an underperforming business
      • Capital structure advantage
        • No debt at the parent level
      • Long term orientation
        • Longer duration opens the field to create value
      • S&P 500 is the benchmark
        • ‘If we don’t beat it over the long term, there is no reason for this organization.’
        • Not looking to beat it over a one year, three year, or even five year horizon, but over the long term.
    • Balance sheet of the company is much stronger today than when we started
      • Only someone with an ulterior motive would say otherwise
    • In 2010, I told you guys to stop bidding up the stock
      • You thought I was joking but the stock got way ahead of the business in ’09 and ‘10
      • For this reason, in April of ’10, we tried to use the stock to buy Advance Auto.
        • In April 2010, stock would have been maybe $330/share adjusted for rights
        • We tried to take advantage of the price back then but we remain unconcerned about price in the short term
    • In closing, we do things differently because we’re guided by logic and in it for the long term holder, not the short term trader
  • Q: Did the movement of funds from the hold co. to the Lion Fund (TLF) require a vote?
    • Independent directors voted on it
  • Q: Would you provide an update on efforts to franchise in Saudi Arabia?
    • It’s been painfully slow but should see the first unit in May

Biglari Holdings

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