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."

Zeke Ashton, Guy Spier, & Michael Lewitt: Value Investing Congress Presentations

Given the large amount of speakers at the Value Investing Congress, we're trying to dissect the day's events into digestible nuggets of information. The following article details the presentations from Zeke Ashton (Centaur Capital Partners), Guy Spier (Aquamarine Fund), and Michael Lewitt (Harch Capital Management).

We posted up comprehensive notes from day 1 of the Value Investing Congress here encompassing presentations by John Burbank, Lee Ainslie, and more. We've also highlighted Bill Ackman's question and answer session in a separate post as well. Make sure to check out those resources. Without further ado, the rest of the presentations from day 1:

Zeke Ashton ~ Centaur Capital Partners

Ashton has seen an impressive 16% CAGR since inception with his hedge fund, Centaur Capital Partners. He had some ideas in the property & casualty insurance space, notably Fairfax Financial (FRFHF) as well as Aspen Insurance (AHL). Fairfax is run by Prem Watsa, a man many have dubbed the 'Warren Buffett of the north' as he's based in Canada.

Aspen Insurance is a name we've seen in David Einhorn's portfolio for a while as well and Ashton believes it could see $40, a book value of 1.15 (it currently trades around $30 per share) as the company continues to buy back stock at a discount. He also sees Liberty Mutual as potential value when they eventually come public.

Turning to his next play, Ashton brought Biglari Holdings (BH) to the table. While he believes retailers in general are cheap, he sees BH trading at 8x free-cashflow and Sardar Biglari (the man in charge) only gets paid if FCF grows 6% per year. Many investors (particularly in the value investing community) have taken issue with Biglari's compensation package. Ashton sees lots of real estate value in BH and likes that they are shifting to a franchise model with their Steak n' Shake stores.

Biglari is essentially trying to create a Berkshire Hathaway-esque holding company/model as his company has made buyout offers for insurer Fremont Michigan (FMMH). Many have pondered whether or not Steak 'n Shake (now Biglari Holdings) was the next Berkshire Hathaway. Biglari also recently revealed a position in Sonic (SONC).

Centaur Capital Partners currently has 20% overall exposure to the retail sector. Ashton believes diversifying between retailers, restaurant, and a high quality operator (like Target - TGT) is beneficial in the space.

Lastly, Ashton mentioned that equity asset managers are cheap due to the public's current distaste for equities. He feels buying a basket of these stocks is a solid approach. He cited (CLMS) as an undervalued asset manager, Janus Capital (JNS), and also MVC Capital (MVC). Interestingly enough, the Centaur Capital Partners manager also noted his use of the iShares 20+ year treasury (TLT) as a hedge against interest rate risk.


Guy Spier ~ Aquamarine Fund

From a theoretical/educational standpoint, Spier highlighted to pay heed to a sign in Warren Buffett's office reading 'invest like a champ today.' Spier profoundly professed that starting relationships with the right people can have a very strong impact on your life as an investor. In particular, choosing the right investors for your fund sets your fate. He highlighted Whitney Tilson and Glenn Tongue's partnership to form hedge fund T2 Partners as well as Markel Corp (MKL) as another good example. On this notion, Spier recommended Michael Eisner's book, Working Together: Why Great Partnerships Succeed.

Shifting to specific picks, Spier actually sees Japan as a compelling potential investment. Screening for stocks in this universe returns a lot of companies with negative enterprise value, many of which are paying dividends and partaking in share buybacks. In particular, the Aquamarine Fund manager singled out Otaki Gas (TYO:9541), a pipeline company that owns assets in Japan. His best idea is slightly morbid in Heian Ceremony Service (JSD:2344), a funeral service business that can benefit from Japan's aging population.

Lastly, Spier had an intriguing quote on the notion of liquidity. He says that liquidity today is not important. Instead, liquidity is important when you want to exit a position.


Michael Lewitt ~ Harch Capital Management

Lewitt, also the author of The HCM Market Letter, started out by saying that we need to rid ourselves of fiscal problems because the traditional tools aren't working. He would prefer a constructive approach instead of pumping out another trillion dollars via quantitative easing round two. Lewitt feels that central banks are destroying currencies (especially in Japan). Also, he feels that naked credit default swaps (CDS) shouldn't exist and highlighted the situation with BP (BP) as an example. You'll recall that in the past we highlighted that Bill Ackman bought BP CDS.

In terms of opportunities, Lewitt sees bank loans as an attractive asset class because they are secured, can be leveraged to enhance returns, and many have 7% floating rates. As a play on bank loans, he likes KKR Financial (KFN). He highlights the 5.5% yield which should increase. He also singled out Tetragon Financial Group (AMS:TFG) trading in Europe.

Turning to bonds, Lewitt says junk bonds have been on fire (obviously). While he likes them, he notes you obviously have to be very selective due to their very cyclical nature. In particular, he finds value in BB and BBB corporate bonds.

Lastly, The HCM Market Letter author recommended utilizing ProShares UltraShort 20+ Year Treasury (TBT) as a way to short bonds. Keep in mind that since this is a leveraged ETF, it suffers from tracking error over longer time periods. He also advocated a long position in gold, something many managers have done.


That wraps up the presentations from these speakers. If you are on Twitter, we are posting live updates from the Congress on our @marketfolly Twitter feed. Be sure to also check out our comprehensive notes from day 1 of the Value Investing Congress.

Biglari Holdings Reveals Sonic (SONC) Position

Sardar Biglari's investment firm Biglari Holdings (BH) has disclosed a new position in Sonic Corp (SONC). Per a 13G filed with the SEC, Biglari Holdings now shows a 5.9% stake in the Sonic restaurant chain with 3,623,668 shares due to portfolio activity on July 28th. Biglari has extensive experience in the fast food industry because Biglari Holdings is actually the new holding company name for Steak 'N Shake.

Back on June 28th, 2010 BH also disclosed a 6.0% ownership stake in Red Robin Gourmet Burgers (RRGB) with 941,189 shares. Burgers apparently, are Biglari's specialty. And as a side note, we also highlighted how Patrick McCoarmack's hedge fund Tiger Consumer Management took a stake in Red Robin as well.

Earlier in the year, many pondered whether Steak 'N Shake was the next Berkshire Hathaway. Sardar Biglari has long been an admirer of Warren Buffett's and appears to be trying to follow in his footsteps. In fact, Biglari had taken a similar path as Sears Holdings chairman Eddie Lampert as he gained control of the company and inserted himself at the head of the company. Biglari then essentially merged his hedge fund (The Lion Fund) into Steak 'N Shake and created Biglari Holdings, coincidentally (or not) the same initials as Berkshire Hathaway.

Further evidencing his experience in the fast food business, Steak 'N Shake acquired Western Sizzlin under Biglari's watch. Since then, Biglari has transformed the fast food chain into a Berkshire Hathaway-esque holding company. He has even performed a 1-for-20 reverse stock split in order to garner a higher stock price in an effort to thwart off short-term traders. The comparisons go on and on, but there was one recent maneuver that was distinctly non-Buffettesque. Many notable financial blogs have highlighted Biglari's pay package and have blasted him for it.

While the manager has attempted to buy an insurance company to provide the necessary float to make investments, he has yet to fully succeed. We'll continue to monitor the developments regarding this potential mini-Buffett in the making. He certainly has a long way to go.

For more on the real Warren Buffett, be sure to head to Berkshire Hathaway's portfolio activity, as well as Warren Buffett's recommended reading list.