Sardar Biglari aspires to build the company he controls,
Minnow-sized hedge fund Groveland Capital launched an activist campaign to replace Biglari this fall, accusing him of a host of shareholder unfriendly actions such as transferring company assets into a fund he manages to gain out-sized incentive payments, and using royalties to license his name as a means to create an up to $100 million golden parachute. That campaign came to a head at the swanky St. Regis, where shareholders voted on whether to keep Biglari and his board, or back a slate proposed by Groveland.
Biglari Holdings was created after Mr. Biglari seized control of Steak n Shake during the financial crisis and quickly restored the burger chain to financial health. Once the business recovered, Biglari then began investing cash flows in new areas such as an activist holding in Cracker Barrel Country Store, and ancillary business lines like Maxim Magazine, hoping to create an investment conglomerate fitting of its 'BH' ticker. Biglari's Berkshire-styled website, shareholder letters, and annual meetings even drew comparison to Warren Buffett in the media.
But Groveland challenged that notion in its proxy campaign, accusing Biglari of being a shareholder unfriendly, chronic under-performer. The fund used Biglari's $34.4 million pay package in 2014 amid declining operating and stock performance, and a host of other complaints, to argue change was needed.
Proxy advisory firms Institutional Shareholder Service and Glass Lewis agreed with much of Groveland's criticism but they found a slate of directors proposed by the fund equally unappealing. Asset manager Gabelli & Co., meanwhile, raised alarm about Biglari's ability to use shareholder assets to stuff the ballot at the vote. Gabelli repeatedly asked Biglari not to vote shares belonging to investors, a concern he never responded to, causing the fund to support three directors on the dissident card, according to sources. Gabelli didn't respond to an email seeking comment.
Nonetheless, Biglari won the shareholder vote with a significant margin. "[S]hareholders have overwhelmingly elected all of the Company’s incumbent director nominees," Biglari said in a statement.
In a packed, near five hour long question and answer session styled after Buffett's so-called 'woodstock of capitalism,' he was defiant.
When asked if he'd learned anything from the proxy war, Biglari responded he learned there are more stupid people in the stock market than he previously thought, according to two attendees at the meeting. Ultimately, Biglari declined to comment to Forbes on whether he'd respond to complaints about compensation, costly royalty payments, and the shifting of company assets into a fund he manages, which drove 97% of his pay in 2014.
About its proxy loss, Groveland's Nick Swenson said in a statement to Forbes, "The vote was close. Three or four shareholders would have made the difference between no seats and a majority of the board.”
"Mindless investing led to mindless voting," Mario Gabelli, head of Gabelli & Co., said in a Friday tweet.
Groveland's campaign failed to unseat Biglari, or lay the groundwork for the governance changes that ISS and Glass Lewis said were warranted. However, it did remove the Buffett-like aura Biglari's commanded since emerging on the investing scene in 2008.
In both practice and performance, Biglari is no new Warren Buffett. Biglari Holdings, furthermore, is likely to continue underperforming shares of Berkshire Hathaway as its done for the past one, three and five years. If investors want a so-called 'jockey' or master capital allocator, they should stick with the 'Oracle of Omaha.'
