jayhead

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

MC,
He prolly went after steak n shake because they own a ton of real estate and also own/operate the majority of their restaurants-he is making a push to sell off real estate and re franchise like crazy.

My personal valuation of SNS comes to roughly 38 bucks a share (which I know is high when compared to other people out there,most get to the low 30s). Though, this is provided that he gets his way with the company.

His 2006 letter to shareholders talks about GULP and SNS seems like the perfect company for it.

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

Ethan,

Would you say that it is a fair to reason that Buffett is upset at trading stock for dexter due to the fact that dexter was a bad investment? Had it preformed well, and become worth more than the 3.5 billion in 2007, would it be safe to say that the shareholders would have been better off?

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

also, what about the value of the SNS long positions? after all, we both agree that they are trading at a discount to their value-shouldn't that be included in your model?

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

When I stated that dilution of shares should "in no way" suggest that WEST is overvalued, that is a bit of an overstatement...

WEST simply doesn't have the cash to buy ITEX at a bargain price. I would imagine that credit drying up would complicate things of this nature, as the debt load that would have to be brought on to acquire ITEX would be pretty large. This is also something that could hold back expansion in the future.

It is true that value guys frown on diluting shares, but I could imagine it be defended when you are getting a better deal-just look at the earnings and C/F that ITEX has...

Do you have a link to where Buffett talks of the mistake of issuing shares to expand?

Why are you not long ITEX? Wouldn't that help the arbitrage out?

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

Just because Sardar Biglari is issuing shares of WEST to buy up another companies common stock, it in no way should suggest that he believes that WEST is trading at a premium to it's intrinsic value... what it would suggest is that he believes the difference between intrinsic value and price of ITEX, Steak n' Shake or what ever company that he is taking a position in, is greater than that of WEST.

Capex was slashed on the restaurant portion of WEST because it didn't boost the companies ROE-in that sense, you would want to allocate funds elsewhere.

The situation at SNS is one of great interest, and with 2 seats on the board, they should be able to do a great deal of good, especially with the mandate that they got from shareholders when they were elected (something like 75% of the vote). I like you am long SNS, and think that it will fare quite well for Biglari, and in turn, WEST and all others that are involved in the matter.