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Biglari Wants to Make You Money

Jonathan Heller

NEW YORK ( TheStreet) -- "I'm here to make everyone some damn money," said Biglari Holdings CEO Sardar Biglari at yesterday's shareholder meeting in New York. As I reported last month, I consider the BH annual meeting to be a must-attend event. I was not disappointed.

Biglari is a walking sound bite. That's not a negative, it's an observation. He is also a walking encyclopedia, quoting from Benjamin Graham's Intelligent Investor and Adam's Smith's Wealth of Nations; and not just the sentiments of each author, but also the exact page numbers where each was found. (I did not verify that he was actually correct with the page numbers, or was just blowing smoke, but am sure that someone who attended the meeting will.)

Many shareholder meetings are certainly not as well attended, or informative as the BH meeting, and there was much to be learned yesterday. For one, the company has not abandoned the notion of adopting a dual share class structure; one that would create a second class of shares with minimal voting rights, and a lower stock price that the current shares.

But there is also a $50 million rights offering on the horizon. While there was a registration statement released on this back in February, there were no details as to the terms, and it seemed as though the mention of the rights offering caught many at the meeting by surprise.

The company has big plans for its Steak 'n Shake business; including expansion, "beautifying" all current units, and expanding both domestically and internationally. Biglari also floated the notion of a new type of Steak 'n Shake unit, "Roadside," which would have no inside seating, and would require just $450,000 in capital per unit. The company will also be rolling out a new menu promotion in May, featuring four meals under $4.

On the subject of the Affordable Care Act (ACA) that has many restaurants scaling back employees' hours, Biglari called it a "non-event," and that his bigger worries include an increase in the minimum wage and the price of beef. He was about as animated on this issue as I've seen him. Biglari stated that the ACA at most would cost the company $5.6 million, while an increase in the minimum wage to $9 an hour would cost $12 million, and a move to $10 an hour $27 million.

On the subject of Cracker Barrel -- of which Biglari Holdings owns 20% and has sought and failed to obtain board seats -- Biglari is not giving up. He likened the experience of owning CBRL to going on vacation, and coming home to find that the maid has changed the locks. "Who owns this damn place anyway?" said Biglari, expressing his frustration, in a somewhat rare show of emotion.

He still believes that there is a great deal of waste at CBRL, including too much spending ($56 million) on billboard advertising, among other things. He also believes that Cracker Barrel patrons are not getting enough value for their money. Biglari did state strongly, however, that the end game with CBRL is not seats on the board, but simply to make money.

Cracker Barrel shareholders have certainly done well, with shares up nearly 50% over the past year. During the same period, BH shares are down 10%. That's quite a disconnect considering that BH, whose market cap is $462 million, owns $386 million worth of CBRL shares. Each share of BH represents ownership of nearly 4 shares of CBRL. While BH's book value has increased significantly over the past years, the share price has not followed; yet anyway.

One of the great aspects of this meeting is that the bulk of it is Q&A from shareholders. One shareholder suggested to Sardar Biglari that he should perhaps take a less aggressive stance when attempting to acquire companies and get seats on the board, a direct reference to the negative press surrounding the Cracker Barrel pursuit. He raised Berkshire Hathaway as an example of an acquirer that partners with companies, one that companies welcome, and does not scare them away.

I've had the same thought. A little finesse can go a long way. But finesse does not appear to be part of Biglari's makeup. While he handled the suggestion well, and calmly refuted it, I don't get the sense that he'll be changing his ways.

As for the many comparisons that BH has had to Berkshire Hathaway, and Biglari himself to Warren Buffet, Biglari said, "If anyone owns BH thinking they have the next Berkshire Hathaway, they need to look elsewhere."

Nice quote, but BH shareholders are expecting big things from their controversial and non-traditional CEO. That's why many of us have been there since Biglari took over Steak 'n Shake. We see promise in his abilities as a capital allocator, and have rewarded him well for his efforts.

At the time of publication, Heller had was long BH.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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