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Sardar Biglari: Apex Predator

Don't Piss Off Sardar Biglari by The Activist Investor

Or else, he might come after your activist projects at your portfolio companies.

This really happened to a small activist fund, Groveland Capital. It’s a fascinating story, which mostly gives activist investors a bad name and sheds light on how Sardar Biglari works.

Biglari Holdings

By now everyone knows this company, right? Helmed by Warren Buffett wannabe Sardar Biglari, he did turn around the Steak ‘n Shake restaurant chain in a credible activist project.

From there it got super weird, as Biglari turned Steak ‘n Shake into a personal investing vehicle. He not only renamed its corporate holding company after himself, he also re-branded the restaurants with his own name. It’s not clear how much of this has to do with a licensing deal that becomes a golden parachute, and how much is pure vanity.

For his principal activist investing project since 2011, he has run serial failed proxy contests at Cracker Barrel Old Country Store. He acquired Maxim magazine, where he creeps around photo shoots. He put his name there, too.

Biglari Holdings also owns Western Sizzlin (a previous activist project) and First Guard, a truck insurer. Berkshire Hathaway owns Dairy Queen and GEICO. Both have the initials BH, but no one dare confuse the two.

Most of all, he created an intricate, conflicted collection of investments among his hedge funds and BH. Just last week Biglari acquired majority control of BH, and appears poised to turn the screws on shareholders a little more.

Groveland Capital

In contrast, at most a few knowledgeable investors knowGroveland. Nick Swenson leads it in Minneapolis with one other PM and $25 million in AUM.

Groveland has run a few small activist projects since 2011, including at Electro-Sensors (ELSE), Pro-Dex (PDEX), and 

Solitron Devices (SODI), with success at PDEX.

Two projects stand out.

Air-T (AIRT): In 2012, Nick Swenson joined the BoD in a settlement of a potential proxy contest at the air cargo company. In 2013 he became CEO, which he remains today. He both runs his investment funds and AIRT. 

Biglari Holdings: Now it gets interesting. On Nov 21, 2014, Groveland announced a proxy contest for control of BH, seeking reforms in the insular and confusing structure that allows Sardar Biglari to run the company for his personal convenience. After considerable acrimony and a formal vote, Groveland lost the proxy contest at the annual meeting in Apr 2015.

Insignia

Now it gets really interesting.

In Nov 2014, Groveland started an activist project at Insignia (ISIG), which produces marketing campaigns for retailers. It invested in ISIG through Air-T. Insignia settled quickly with Groveland, and Nick Swenson and Jacob Berning (a Minnesota executive that Groveland designated) joined the BoD.

Pay attention now:

  1. ❖At the 2015 annual meeting in June, the company nominated and shareholders elected two more independent directors, Peter Zaballos and Michael Howe.

  2. ❖Insignia’s CEO resigned in July 2015, with the CFO becoming the acting President.

  3. ❖On Dec 9, 2015 Ed Corcoran (director since 2013) became BoD chair, replacing David Boehnen (director since 2012).

As all this transpired, BH acquired a whopping 19% of Insignia in a series of open-market purchases. It started buying shares on Dec 1, 2014, a week after Groveland began its proxy contest at BH. It paid as much as a 50% premium over the share price from the previous month. It disclosed its block on Dec 22, 2014, urging the company to pay a special dividend and sell itself.

For good measure, BH also acquired 14% of Air-T. It started buying those shares on Dec 8, 2014, which it also disclosed Dec 22, 2014. Air-T immediately implemented a poison pill that appears to have limited further BH purchases.

BH sat on its shares in both companies for most of 2015. Finally, in Oct 2015 it requested two BoD seats at Insignia. In Dec 2015, it settled with the company, adding Biglari and BH Vice-Chair Phil Cooley to the BoD. Most recently, in Jan 2016, Biglari and incumbent director Peter Zaballos became BoD co-Chairs in Jan 2016. They replaced Ed Corcoran, who served as BoD Chair for a month or so.

We don’t know what Groveland and Nick Swenson think about these changes. Insignia, Groveland, and BH together entered into the settlement and standstill agreement that landed Biglari and Cooley on the BoD, so they probably had at least a little constructive dialogue. Yet, the co-Chair structure seems clumsy. And, we wonder why Swenson or perhaps Berning didn’t become BoD Chair or co-Chair. Maybe they didn’t have time for that role. Perhaps that was the cost of peace with the larger and mercenary Biglari.

No telling what will happen at Insignia, or Air-T. Groveland probably has some decent ideas about how to make money for ISIG and AIRT shareholders and Groveland investors. Not sure what BH wants to do, other than make life difficult for Groveland. Not the best way to make money for anyone, other than Sardar Biglari.