Sardar Biglari Goes Activist on Penn Millers Holding Corp (PMIC) ~ market folly

Tuesday, May 3, 2011

Sardar Biglari Goes Activist on Penn Millers Holding Corp (PMIC)

Sardar Biglari's Lion Fund and Biglari Holdings (BH) recently filed an activist 13D on shares of Penn Millers Holding Corp (PMIC). Due to activity on April 19th, Sardar Biglari revealed a 8.4% ownership stake in the company with 416,598 shares.

While his SEC filing signals activist intent, he did not outline any immediate plans. Sardar Biglari runs publicly traded Biglari Holdings (BH), formerly known as Steak 'n Shake. He has also essentially merged his hedge fund (the Lion Fund) into the company as well.

Berkshire Hathaway-esque Model

Biglari Holdings (BH) initially drew interest from value investors because it seems as though Sardar is trying to mimic Berkshire Hathaway's holding company model. BH has tried repeatedly to buyout insurer Fremont Michigan (FMMH) to acquire an insurance float to invest ala Warren Buffett.

Additionally, Biglari has executed a 1-for-20 reverse split of his BH shares in order to garner a higher stock price. He apparently did this in an effort to ward off short-term holders. He also is implementing a dual share class structure like Berkshire, with new B shares being issued worth one-fifth the value of the A shares and with 1/20th the vote. Shareholders would receive 10 B shares for each share of BH currently owned.

Since Biglari has been unsuccessful in his quest for FMMH, it seems he has focused his attention on Penn Millers (PMIC) now. And while value investors initially liked what Biglari was pursuing, they took issue with his compensation package.

Biglari Holdings (BH) is an investment management and holding company. Its subsidiaries include Biglari Capital, as well as restaurants such as Steak 'n Shake and Western Sizzlin. We've also detailed how Biglari owned some Sonic (SONC) in the past as well.

So while Biglari's pursuit of Fremont Michigan hasn't succeeded, his activist pursuit of Penn Millers could heat up if he truly desires an insurance float.

Per Google Finance, Penn Millers Holding Corp is "a holding company of Penn Millers Insurance Company. It is engaged in providing a variety of property and casualty insurance products designed to meet the insurance needs of certain segments of the agricultural industry and the needs of middle market commercial businesses."

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