Steak n Shake: Watching and Waiting as Biglari Names Himself CEO 8 comments
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As we’ve known since the annual meeting of Western Sizzlin’ (WEST), Biglari has been searching for a new CEO for Steak N Shake (SNS). It seems he has found one: himself.
So, while the news is symbolically important, the practical difference between “Biglari, Chairman and CEO” and “Biglari, Chairman” seems very little. He’ll still not be running restaurant operations, and remains on the lookout for an operator. I’ve mentioned before that Sardar shouldn’t try to become an operational CEO. As a strategic leader with financial acumen, on the other hand, Biglari should excel.I would like to thank Wayne [Kelley, interim CEO] for his guidance over the last several months. In reviewing Steak n Shake and beginning to implement its restructuring, the Board and I concluded that to achieve the best results, we need an executive who will be focused on restaurant operations. As a consequence, we will seek a president with significant restaurant experience to concentrate on improving restaurant operations, whereas I will assume the CEO position, leading the organization principally from a strategic, financial, and governance perspective.
This all stacks up to postive news with a little negative taint. The structure Biglari looks to build for SNS seems logical, and he is the person to be making broad strategic and financial decisions. However, this means no operator has been found during the intense search process currently in progress.
At the Western Sizzlin’ annual meeting, Sardar spoke about the search. He alluded to the fact that SNS was very close to hiring a well-known CEO, presumed by the crowd to be Aylwin Lewis by his hints, but that it had fallen through.
I hope progress has been made since then, for obvious reasons. Shareholders can only take a “wait and hope” approach for now. In the meantime, Monday’s earnings release should give us a hint how horrendous the first quarter under Biglari was.
“Details of our plan will be disclosed within the next 60 days in a shareholder letter.”
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This article has 8 comments:
You are an idiot ! Better hurry up and cover your short.
Its not going below $6 again.
All the bad news is "baked in".
SNS paid $500k for the proxy fight costs and is now compensating Biglari at $280k per year. This is the guy that said he wasnt going to take any fees and wanted to make money with us, not off of us.
Im long both WEST and SNS but now have a fear that if and when value is realized, SNS may well become another investment vehicle for Sardar rather than the proceeds being distributed to shareholders.
His lack of diversification scares me some so I dont want to see him sitting on a pile of SNS cash and allocating it like he did when he was buying SNS at $16.
On the proxy fee, that's going to WEST remember, mostly. It's not going right into Sardar's pockets. Without those costs, though, SNS would still be stuck in the terrible situation its been in for years. 500k is well worth it for us, and as WEST shareholder you will benefit from that.
On your last comment, yes even Biglari admitted he bought a bit too high with SNS, and value deteriorated. However, I still believe strongly that SNS is worth far more than its current price, so it should end up a decent but not great investment, depending on what Biglari can achieve. Besides being early on SNS, his capital allocation decisions have worked out very, very well. I wouldn't be so quick to throw his decision making ability off the bus, yet.
If you're not comfortable with his capital allocation decisions, you really should not own WEST. If you believe that cash flow will be distributed, I would sell the stock, because you can pretty much take it to the bank that Biglari will take what ever proceeds come out of SNS and re-invest in another opportunity.
I don't see SNS going bankrupt but trust me, if it does Sardar and his groupies will go the way of many "one hit wonders" like Quiet Riot.
You are blessed with a remarkably imaginative, talkative Gut. Most people gut say things like "Ugg" or at the most " something doesn't feel right". You might wanna get a checkup. You may contain some kind of advance symbiotic parasite, like in Stargate.
I do however agree with most of the rest of User 71887's post. Aside from performance at the Lion Fund, Biglari's single most positive action was the investment in FRN, and it isn't clear what portion of that was luck vs. skill. Aside from that, all he has provided is coining a lot of phrases from Buffett and talking about a strategic plan. Now he's got two large resturant companies without operational management, and probably has his hands full.
You're right on with FRN margin debt. The investment was successful because he bought at a sufficiently low price. That's value investing. Often times if you buy at the right price, a nice franchise (Friendly' is a great ice cream franchise in the Northeast, where I live) will be bought cheaply by strategic and/or financial buyers. It's not "luck." Good decision making often leads to good results. Who are you to say what would have happened had FRN not received a bid?
WEST does indeed have operational management, the fella is named Bob Moore and he is the CEO of Western Sizzlin Franchise Corp, former CEO of Whataburger.
Since Biglari has gotten to WEST, he has pared down debt, sold off underperforming restaurant locations, created a solid ROIC business in the franchising arena, entered into an enourmously successful joint venture, made a successful stock investment in FRN, and turned a weak corporation into one run for cash flow maximization and the shareholders. Remember that no shareholder will lose more than he if WEST fails, so there is nothing in it for him to talk without results.
Why aren't institutions interested? Who could buy up at $41mm company? WEST is a micro cap. Let's say you wanted to put 10% of your assets in WEST, a pretty large position for any fund. At maximum, you could probably gobble up 10% of WEST, considering the public float. Let's even say you could get 15%. 15% of $41mm is a whopping $6.15mm. So if you put $6.15 of your $61.5mm in assets in WEST. Say you only can put 5% in WEST. That's a $123mm fund. What institutions are running $60-$120mm portfolios? WEST can't even make an impact on any reasonable portfolio. 15% is 412k shares. At a few thousand shares trading in total, every day, it would take you a year to accumulate that position without bidding the price all the way up. That's why the institutions aren't interested.
Whoever Sardar's "groupies" are, they've done pretty darn well so far.
If you held WEST since Biglari has taken over, you would have nearly doubled your investment by now; adjusted for splits, Biglari took over in 2005 between 7 and 8 per share. It is an extremely thinly traded stock to this day.
So his job isn't to "get the stock moving." He's also not "running a restaurant" (in the case of SNS, only out of necessity until the President is hired, and Bob Moore runs the restaurant operation at WEST, before that it was Jim Verney).
His job is to make capital decisions that benefit shareholders. Everything outside of SNS has worked out great. It remains to be seen whether SNS will work out, so in the end the results will lie where they may.