--Buffett devotee Biglari again delays shareholder meeting on
dual-class structure
--Delay may signal lack of support for proposal
--Activist investor also ratchets up pressure on longtime target
Cracker Barrel
By Mia Lamar and Annie Gasparro
A bid by activist investor Sardar Biglari to further shape his
holding company on the model of Warren Buffett's Berkshire Hathaway
Inc. (BRKA, BRKB) may have hit a snag.
Mr. Biglari, who runs the Steak 'n Shake restaurant chain
alongside other investments, is seeking shareholder approval to
offer two classes of shares of Biglari Holdings Inc. (BH), as
Berkshire shares have been set up for years. Yet a meeting to vote
on the proposal has been delayed twice, most recently for a meeting
set for Friday.
A dual-class structure concentrates voting power in one class of
shares. Mr. Biglari has proposed setting up Class B shares that
would be equal to one-fifth of the existing shares but with just
1/100th of a vote.
While dual-class share structures have attracted criticism of
late, Mr. Biglari said the creation of a second class of shares was
"absolutely essential," and would make it easier for his company to
use the stock to fund acquisitions.
The shareholder meeting to conduct the vote was originally set
for Nov. 2, but that meeting was pushed back at the last minute to
Dec. 14, with an encouragement from the company for "all
shareholders who have not yet voted to do so now."
The latest delay was announced in a press release late Thursday,
with no future date mentioned.
Chris Davis, an attorney at Kleinberg, Kaplan, Wolff &
Cohen, P.C., who advises activist investors, said "postponing a
special meeting is the classic reaction to not getting enough
votes," though he added that he couldn't speak to the Biglari
Holdings situation specifically.
Representatives for Mr. Biglari didn't respond to requests for
comment Friday.
With a sparse website evocative of Berkshire's and a stock worth
hundreds of dollars after he arranged for a 1-for-20 reverse split
in 2009, Mr. Biglari has taken a number of steps that mimic the
investing icon. He holds lengthy annual meetings and fields
investor questions for hours, similar to Berkshire's meetings, and,
like Mr. Buffett, writes annual letters that refer to his vice
chairman by his first name.
Mr. Buffett built Berkshire in part by using premiums from
insurance companies to make profitable investments in other
sectors. Mr. Biglari made an effort in 2010 to take over Fremont
Michigan InsuraCorp Inc. and more recently took a roughly 10% stake
in tiny insurance firm Unico American Corp. (UNAM).
Biglari Holdings shares are down about 7% this year. The stock
rose 0.8% to $345.22 Friday.
Berkshire's Class A shares, meanwhile, are up roughly 17% this
year. Berkshire's Class A shares fell 0.3% to $133,795 on
Friday.
Mr. Buffett first sold Class B Berkshire shares in the
mid-1990's as a jab at copycat mutual funds that sprouted up to
mimic Berkshire's holdings as the company's stock price soared,
although he famously said he wouldn't recommend such an investment
to friends or family.
Such structures have come under new criticism recently. The
Council of Institutional Investors, whose members manage about $3
trillion of assets, in October asked Nasdaq OMX Group (NDAQ) and
Big Board owner NYSE Euronext (NYX) to stop listing companies that
offer dual-share classes.
In its proposal, Biglari Holdings said it requires a structure
"that enables a long-term perspective" and said it could put Class
B shares to use in acquisition arrangements. It added that it is
aware of the criticisms of the dual-class model.
"What separates our dual-class structure from many others is
that we are treating current shareholders akin to founding partners
in the business," the company said. "By issuing a second class of
stock, we are guarding against our current shareholders suffering
from significant voting power dilution when we issue stock in
business transactions."
Indeed, Berkshire further modified its Class B shares in 2010 to
help fund the acquisition of railroad Burlington Northern Santa Fe.
Each of Berkshire's Class B shares are now worth 1/1,500th of the
Class A stock and have the voting rights of 1/10,000th of the Class
A's.
"I think a lot of the shareholders are skeptical of some of
these proposals that don't necessarily have anything to do with the
operations of the business," said Steven Kiel, president of
Arquitos Capital Management and an investor in both Biglari and
Berkshire.
"I am a longtime passive shareholder and fine to ride his
coattails, but I don't think that's how most shareholders feel,"
Mr. Kiel added.
Of the 1,000 largest U.S. companies, about 10% offer stock that
gives some holders more votes than others, according to a study
from Governance Metrics International, which models corporate
governance for public companies. Shareholder votes help determine
the membership of the board of directors, approval of mergers, and
often, recommendations on executive compensation.
Mr. Biglari has proved tenacious in his investments. After
losing his second battle with restaurant chain Cracker Barrel Old
Country Store Inc. (CBRL) last month, he upped his stake in the
company once again this week.
The investor now sits just six shares shy of a 20% "poison pill"
trigger that would give other shareholders the right to purchase
$400 worth of shares for $200, according to a regulatory filing
Thursday.
As Cracker Barrel's largest shareholder, Mr. Biglari has been
battling the country-style restaurant and gift-shop chain for the
past year-and-a-half, criticizing its performance, pushing for
changes in its leadership and taking issue with the way it reports
profits.
Since September 2011, Cracker Barrel's stock has risen nearly
70%, indicating that Mr. Biglari has made a hefty profit on
paper.
Write to Mia Lamar at mia.lamar@dowjones.com and Annie Gasparro
at annie.gasparro@dowjones.com
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