Biglari Holdings 2014 Annual General Meeting – Notes

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

See full PDF below.