Sardar Biglari is using the Lion Fund to make a rights offering for 27.8% of Biglari Holdings' shares. Specifically:
On June 4, 2015, the Lion Fund II commenced a tender offer to purchase up to 575,000 Shares, in cash, at a price of $420.00 per Share, net to the seller less any applicable withholding taxes and without interest (the “Offer”). If the Offer is fully subscribed, the Lion Fund II will purchase 575,000 Shares, which would represent approximately 27.8% of the outstanding Shares and would result in the Reporting Persons beneficially owning an aggregate of approximately 980,707 Shares, which would represent approximately 47.5% of the outstanding Shares.
With the rights offering at $420 a share, many shareholders can use this as an easy exit or arbitrage opportunity. But the current discount of 2.4% suggests some are skeptical that they won't be able to offer their shares - it's a large part of the outstanding shares, but we could still see an oversubscription. The offer ends July 1.
It seems Sardar is anxious to put to use that special dividend he'll have coming from the Cracker Barrel announcement last week. The big question is; does Sardar see Biglari Holding shares as undervalued or is this his way of getting his hands around more of the company? It's a convoluted mess, with Biglari owning some 90%+ of the Lion Fund II. So don't think of this as a buyback - merely a way to wrangle more control.
The other big question is what will Mario Gabelli and Gamco do? Mario owns nearly 10% of Biglari and has been trying to get Sardar to change his corporate governance practices for over half a decade. Gamco owns Biglari shares from back in the day, before it was Biglari in fact, from the days of trading as Steak n' Shake. Now seems like a good a time as any to make an exit for Mario. Especially assuming Sardar gets even a fraction of those shares tendered that he's aiming for, he'll be untouchable.
In truth - We all knew this was coming to some degree. Sardar wasn't going to sit around and wait on another activist to step up. Recall that Groveland put up too much of a fight for a fund owning 0.16% - a larger fund with a louder activist voice could have easily jeopardized Biglari's job come next proxy season. Still not owners of Biglari, perceived discount to book value or not.
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