Biglari Holdings Urges Shareholders to Protect Their Investment from Groveland
March 25 2015 - 9:00AM
Business Wire
- Believes Groveland’s attempt to take
over the Company without paying for it would harm all shareholders
–
- Reminds shareholders that since Sardar
Biglari became CEO, total shareholder return has outpaced S&P
500 by 175% –
- Urges shareholders to vote the
BLUE Proxy Card today to elect all
Biglari Holdings Nominees –
Biglari Holdings Inc. (NYSE:BH) (“Biglari Holdings” or the
“Company”) today released an open letter to shareholders regarding
the Company’s 2015 Annual Meeting of Shareholders, to be held April
9, 2015. A small hedge fund, Groveland Capital LLC (“Groveland”),
which has disclosed a diminutive ownership stake in the Company of
approximately 0.167%, is attempting to replace the entire Board of
Directors of Biglari Holdings with a slate of nominees that the
Company believes is wholly unqualified. Biglari Holdings is
concerned that Groveland and its nominees are motivated by
self-interest, rather than the best interests of all shareholders
and have no long-term value-creating plan for the Company’s diverse
businesses.
The full text of the letter is as follows:
Dear Shareholders of Biglari Holdings Inc.:
By now, you have received yet another letter from a small firm
called Groveland Capital LLC (“Groveland”) that is hoping to take
over your $1 billion Company with only a $1 million investment.
Based on the information that Groveland has been disseminating, it
appears only one of two things could be true: 1) they do not
understand our business on even a rudimentary level or 2) they are
deliberately aiming to distract our shareholders from what truly
matters — maximizing value over the long-term. Consider the
following:
The Truth Is in the Numbers:
Biglari’s Long-term
Performance
- By selecting discrete time periods to
evaluate the performance of our stock, Groveland completely
disregards the long-term performance of Biglari Holdings’ stock and
its investments, both of which have far outstripped our benchmark,
the S&P 500 Index.
- In relying on conventional financial
metrics such as operating income and EBITDA to measure the progress
of our business, Groveland betrays its fundamental misunderstanding
of our economic objective of maximizing per-share intrinsic value
over the long-term.
- Groveland fails to appreciate the
underlying rationale behind the significant yet disciplined
investments we have made in our businesses, among other things, to
expand our franchise model for Steak n Shake and turn around the
Maxim brand. Willingly and sensibly we trade near-term profits for
higher long-term cash flows.
Who is Groveland?
As a firm too small to be required to disclose its assets to the
SEC, one could be forgiven for not readily knowing the answer to
this question. We are concerned that Groveland is trying to make a
name for itself at our shareholders’ expense. However, there are a
number of things we DO know about
Groveland that we feel shareholders should consider:
- Groveland is trying to take control
of your Company without paying for it. Groveland and Nick
Swenson have a minuscule stake (0.167%) in Biglari Holdings, and
Groveland’s remaining five nominees own zero shares of the Company.
One nominee, Seth Barkett, who is also Mr. Swenson’s partner at
Groveland, completely sold out of Biglari Holdings shares one month
before Groveland nominated its slate to replace the entire Board of
Biglari Holdings. Ask yourself: How
can Groveland, as a 0.167% shareholder who is attempting to take
over your Company, possibly have interests that are aligned with
yours?
- Groveland’s nominees have no
experience running a business anywhere near the size or complexity
of Biglari Holdings.
- Groveland’s “plan” for our business
is really no plan at all. Do not be fooled by Groveland’s broad
generalizations and empty watchwords. We have no doubt that
Groveland’s “plan” would have disastrous consequences for our
businesses, employees, and shareholders.
- Nick Swenson has broken promises to
shareholders in the past. Mr. Swenson previously ran proxy
contests at nano-cap companies like Air T and Pro-Dex on a
“corporate governance reform” platform, only to reverse course soon
after taking control. Mr. Swenson may state he is in pursuit of
“corporate governance reform” when in actuality it is clear to us
he is in pursuit of “corporate control.” Biglari Holdings’
shareholders cannot afford to have Swenson’s history repeat
itself.
Groveland’s False and Misleading
Claims
Although we would prefer not to engage in a point-counterpoint
exchange with Mr. Swenson, we believe the record needs to be set
straight on the following:
- Groveland
Claim: “[I]t seems to us that Steak n Shake was far from
insolvent back in 2008.”
- The
Truth: Steak n Shake was within 90 days of insolvency.
Whereas Groveland contends that EBITDA was positive, in reality,
Steak n Shake was millions of dollars in the red. When I became CEO
in August 2008, Steak n Shake’s customer traffic was declining
year-over-year by over 10%, cash flows were negative, and the
company was out of compliance with its debt covenants. Its lenders
demanded a reduction in its debt, and after all possible avenues
had been exhausted, one lender stated in an e-mail to management:
“We have done all we can.” Under present management, Steak n Shake
has experienced one of the great brand turnarounds in the history
of the restaurant industry. In a true testament to the enduring
power of the brand which we have resurrected, Steak n Shake
announced yesterday that it will achieve its 25th
consecutive quarter of same-store sales growth.
- Groveland
Claim: Groveland has raised questions about our
acquisition of Maxim and the expenses we have incurred to
revitalize this globally-recognized brand.
- The
Truth: We view Maxim as an opportunity to achieve
another turnaround success story in a similar vein as Steak n
Shake. Value is not determined by one- or two-year cash flows;
otherwise, there would be very few turnarounds and start-ups. Thus
far, we have completely revamped the magazine’s entire staff,
upgraded the publication, and more than tripled Maxim’s advertising
revenue in March 2015, as compared with the same issue in March
2014 — all in the first year under our ownership. Groveland’s focus
on the immediate impact of these efforts concerning our earnings
statement once more ignores the significant long-term value we
expect to be created under our management for the benefit of all
shareholders.
- Groveland
Claim: I receive “outsized compensation” for my dual
roles as CEO of our operating businesses and for managing our
investments.
- The
Truth: For serving as CEO of Biglari Holdings, I
received $900,000 in total compensation in fiscal 2014. For my role
managing our investments, the fee structure for Biglari Capital
Corp. (“BCC”), of which I am Chairman, is far more favorable than
those charged by hedge funds and comparable publicly traded
companies with similar structures. Unlike most other firms, BCC
does not receive any fee based on assets under management, only a
fee premised on the performance of our investments (which are
subject to both a 6% hurdle rate and a high-water mark). Moreover,
performance has been nothing short of extraordinary. From August
2009 through December 31, 2014, Biglari Holdings has earned $490
million in investment gains. As a result, Biglari Holdings’
balance sheet has grown exponentially from a standing start of $1.6
million in cash in 2008 to over $917 million of cash and
investments on December 31, 2014.
- Groveland
Claim: I sold BCC to Biglari Holdings for $4.2 million,
then bought it back for only $1.7 million.
- The
Truth: I sold BCC to Biglari Holdings for a purchase
price of one dollar ($1.00). The difference between the $4.2
million erroneously and repeatedly referenced by Groveland and that
of the $1.00 actual purchase price represents my capital account in
BCC. In other words, I just received a return of my own capital.
Again, Groveland appears to be either incapable of understanding
our disclosure or incapable of presenting the facts.
- Groveland
Claim: Mr. Swenson states that the rights offering he
conducted at Pro-Dex “did not result in oversubscription by any
shareholder.”
- The
Truth: Although such was not the result, it was
certainly Mr. Swenson’s intent. Mr. Swenson and another director
gave themselves the sole opportunity to obtain 100% of the
oversubscription privilege of the rights offering, to the exclusion
of all other shareholders, who had no ability to transfer their
rights or to participate in the oversubscription. The only reason
shareholders did not suffer an extreme dilution of their interests
at the hands of Mr. Swenson was apparently because Mr. Swenson did
not do his homework: he failed to realize at the outset that the
exercise of the backstop would jeopardize Pro-Dex’s ability to use
its net operating loss carryforwards. This form of a dilutive
rights offering stands in stark contrast to the rights offerings
that were carefully planned and conducted by Biglari Holdings, in
which all shareholders were treated equally.
- Groveland
Claim: “Mr. Swenson’s actions regarding Sun Country
Airline are above reproach.”
- The
Truth: In October 2006, Mr. Swenson’s former firm and
Tom Petters jointly announced their acquisition of Sun Country
Airlines. Their firms were co-investors and Swenson and Petters
were both board members between 2006 and 2007. Mr. Swenson
conveniently glosses over this period of time, during which he
served on the Sun Country board together with Tom Petters, who was
subsequently convicted of orchestrating the third largest Ponzi
scheme in U.S. history behind only Bernie Madoff and Allen
Stanford. Mr. Swenson may try to gloss over his business
dealings with convicted Ponzi Schemer Tom Petters, but to us at a
minimum it demonstrates extremely poor judgment.
- Groveland
Claim: Groveland has a “clear plan of action” for
Biglari Holdings.
- The
Truth: It is clear to us that
Groveland’s plan is really no plan at all. Groveland’s
“plan” consists of installing a recycled “interim” CEO (who is
currently serving as a consultant) with restaurant experience and
performing a “financial, operational, and strategic review of
Maxim, First Guard Insurance, and Western Sizzlin.” No question in
our minds that the momentum of all our businesses would become
derailed under Mr. Swenson’s so-called “plan.” Mr. Swenson also
neglects to mention how he would manage the Company’s significant
investments. Furthermore, overseeing this “plan” would be
Groveland’s slate of nominees, who have no experience running a
multifaceted business of the size, scale, and scope of Biglari
Holdings, and none of whom manages an equity portfolio anywhere
close to the magnitude of ours.
- Groveland
Claim: Groveland’s ownership of 0.167% of Biglari
Holdings stock is a “meaningful position.”
- The
Truth: For a group attempting to take control of your
Company, we sincerely doubt this is what Mr. Swenson had in mind
when he stated in a prior proxy contest, “Without ‘skin’ in the
game, we believe the Board is not motivated to create value for
shareholders.” It is evident to us that Groveland’s interests are
not aligned with yours. Mr. Swenson claims he is engaged in “true
public service.” Given his past track record, does Mr. Swenson
actually expect shareholders to believe he is trying to take
control of your Company for altruistic reasons? What, then, is Mr.
Swenson’s motivation for taking over a $1 billion company with a $1
million investment?
Ask yourself if you would trust your investment in the hands
of this Groveland group? We believe the answer is a resounding
NO.
The vote at our 2015 Annual Meeting is a vote for the future of
your investment in our Company. Do not be fooled by the false,
inane propaganda Groveland is disseminating. We trust that our
shareholders will make the correct decision so that together we may
continue on our journey to achieve maximum long-term value. We urge
you to review our detailed investor presentations at
http://www.okapivote.com/biglari, which we believe contain the
actual facts you need to know to make the right decision for the
future of our Company. Be sure to vote the BLUE proxy card
today to elect all six Biglari Holdings nominees to the Board. We
look forward to continuing to serve as the stewards of your
capital.
Sincerely,
/s/ Sardar Biglari
Sardar Biglari
If you have any questions, require assistance
with voting your BLUE proxy card, or need additional copies
of the proxy materials, please contact our proxy solicitor:
OKAPI PARTNERS LLC437 Madison Avenue,
28th FloorNew York, NY 10022(212)
297-0720Shareholders Call Toll-Free at: (877)
279-2311E-mail: info@okapipartners.com
About Biglari Holdings Inc.
Biglari Holdings Inc. is a holding company owning subsidiaries
engaged in a number of diverse business activities, including
media, property and casualty insurance, as well as restaurants. The
Company’s largest operating subsidiaries are involved in the
franchising and operating of restaurants. All major operating,
investment, and capital allocation decisions are made for the
Company and its subsidiaries by Sardar Biglari, Chairman and Chief
Executive Officer.
Risks Associated with Forward-Looking Statements
This news release may include “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995 and other federal securities laws. These statements which
may concern anticipated future results are based on current
expectations and are subject to a number of risks and uncertainties
that could cause actual results to differ markedly from those
projected or discussed here. Biglari Holdings cautions readers not
to place undue reliance upon any such forward-looking statements,
for actual results may differ materially from expectations. Biglari
Holdings does not update publicly or revise any forward-looking
statements even if experience or future changes make it clear that
any projected results expressed or implied therein will not be
realized. Further information on the types of factors that could
affect Biglari Holdings and its business can be found in the
company's filings with the SEC.
Media:Sloane & CompanyElliot Sloane,
212-446-1860esloane@sloanepr.comorDan Zacchei,
212-446-1882dzacchei@sloanepr.com
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