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Arbitrage Opportunity: Western Sizzlin/Steak 'n Shake Pair Trade

I was looking at your 3/07 numbers

I agree w your core business valuation of about 2M of CF*10X of 20M

But as of 12/07 the co has marketable securities booked at $16M and about $4M in real estate, less 2M of debt. The $16M I presume is mostly SNS marked to market.

So seems to me, correct me if I'm wrong, you're buying an operating business at about 10X, w no capex, so that is 10% pure cash flow yield. Not dirt cheap, not 5X, but cheap enough considering the rest of the mart and the fact that most managers can't allocate capital very well. You're also getting the securities/real estate at about even, 20M (so that's 20M + 20M = 40M market cap, about even). On top of that, you're getting a guy who seems to have a nose for value, i.e. ITEX which is trading at about 8X CF. He bought Mustang and Mustang's boss seemed to speak fondly of Biglari. I like Biglari's style bc it's simple (get CF) and yet he seems to find decent co's out there, i.e. ITEX.

I am a bit bothered by the stock issuances. But, not really. Like I said, despite the dilution the valuation is reasonable. And if he's going to sell stock to buy ITEX, which is like I said trading at about 8X w no capex to speak of, and growing, and synergistic w WEST as he claims, I'm OK w using stock to buy the co.

Also, this is a small co w an almost unlimited investment universe for him to invest in.

Again, correct me if I'm wrong, but if SNS doubles, then the securities double to $32M, which is almost the value of the co right now.

Big surprise based on this post, I am long WEST.