Notes from Biglari Holdings annual meeting for the year ended December 31, 2015 by Adam Gaglio
[buffett]
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. Unless otherwise indicated, Biglari is speaking.
- 1:07pm start- went through formalities regarding proposals and introducing directors
- Pre Q&A Remarks
- Good idea to review history to see where we came from
- First slide, top part is an email from 2008 stress testing 10% decline in sales [it’s not pretty]
- Current CEO was very concerned about the business
- One of the main reasons for his resignation was the belief that company was going to fail
- Steak ‘n Shake (SnS) losing $100k/day, in violation of debt covenants
- “I’m self-made entrepreneur”
- Started first business with $15k
- Parlayed into bigger and bigger sums
- Phil & I decided to partner up and have always behaved entrepreneurially
- Started first business with $15k
- Other companies were not interested in taking over SnS
- ‘We offered them and other individuals generous pay packages’
- Made it clear that money was no concern
- ‘We offered them and other individuals generous pay packages’
- SnS resurrected from ashes, now thriving
- Prior to our management, traffic declining faster than peers
- After our management, growing faster than peers
- Minor changes not going to save SnS
- 10/10 restaurant veterans would have failed in turnaround
- No time for analysis, needed entrepreneurs
- This was not an activist campaign that was successful
- Activists not interested in, or many that are even capable of, running a company and turning it around
- We are entrepreneurs first, investors second
- We developed a value proposition that we first formed in our own minds
- We presented the value prop during the proxy battle and were questioned because our prices were higher than competitors
- We had better quality but the value proposition was still lower because of higher prices
- SnS started with $1.6mm of corporate cash in 2008, ended 2015 with $815 million of cash [presents slide showing sources of cash: rights offering, debt, operating cash flow, etc.]
- CBRL is our most significant investment
- Without our pressure on the BOD, investment would have turned out much differently
- Most important change was a moratorium on new stores
- We didn’t have all the data but could see a productivity decline
- We prompted management to reveal their return on new restaurant investment
- Showed their calculation in a filing
- Running their numbers using Damodaran’s method, return would have been sub 4%
- Big contention was whether you have to add back G&A
- If you add a couple stores maybe you don’t need additional G&A, but beyond that, you absolutely do
- Even without G&A, return would be only 9%
- Showed their calculation in a filing
- Beyond 2011 and 2015, CBRL opened 34 new stores costing $5 million a piece
- Bet they’re not going too well on that
- Dividend payout ratio has slowly creeped up, now over 100%
- Investment a testament to holding company structure
- Had we opened SnSs instead, wouldn’t have made nearly as much
- All decisions we make with idea of increasing per share intrinsic value
- If our interest was increasing managerial domain we would buy more whole businesses, not partial stakes
- We don’t use committees, consultants, etc. to assist with capital allocation
- We have 23k employees and only 5 at the holding company
- Don’t burden pursuit of value with bloated cost structure
- Ideally we buy great companies like First Guard [compliments First Guard and Ed Campbell at every opportunity] but will get involved with turnaround situations
- We have a great capital structure
- All debt is at subsidiaries
- Pay a higher cost of debt but safer
- All debt is at subsidiaries
- Have long term orientation
- A lot of people talk about this but few have it
- We think in terms of decades
- Doesn’t sit well with some, like those managing money for others
- We look at minimum of 10-year period
- Benchmark is S&P 500
- Our stock performance has been very volatile
- For a while the stock outperformed the business
- Final analysis: We have outperformed S&P500 [starting from day current management took over]
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Biglari Holdings
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