Fun and Fireworks at Annual Meetings

NEW YORK (TheStreet) -- The Berkshire Hathaway (BRK.A) annual meeting, coming up in early May, has become the stuff of legends, and is not your typical shareholder gathering. This is a weekend event, attended by thousands, complete with a reception, 5K, picnic, and exclusive shareholder shopping at a Berkshire owned company (Borsheims), and "Steak Night." Most if not all other annual meetings pale in comparison to this event, and are typically not well attended by shareholders.

One that is well-attended, however, especially given the size of the company, is the Biglari Holdings ( BH) annual meeting, coming April 4 in NYC. I try not to miss this meeting; and this year should prove to be especially interesting.

Biglari Holdings has been embroiled in a fairly well publicized battle with Cracker Barrel ( CBRL) , haven taken a 20% stake in the country dining chain. Biglari Holdings CEO Sardar Biglari has not minced words about the greater transparency and changes he wants to see at Cracker Barrel; and he has failed so far to obtain seats on the board of directors.

That's where the story starts to get interesting. In previous columns I've discussed the fact that Biglari Holdings' Cracker Barrel stake represents a large portion of the company's market cap; and that number continues to rise. As of yesterday's close, Biglari Holdings, which has a $472 million market cap, owned $372 million worth of Cracker Barrel. Quite interestingly, Cracker Barrel shares have risen more than 40% over the past year, and are trading at an all-time high. Meanwhile, Biglari Holdings shares are down 5% during the same period. And it's not as if Biglari obtained all of its' CBRL stake, over the past year; at this time last year, it already owned about 14.5% of the company, worth about $190 million. BH Chart BH data by YCharts
CBRL Chart CBRL data by YCharts

Without a doubt, price performance of Biglari shares has been disappointing the past couple of years. It tells me that the company may be either misunderstood, underfollowed or both. The fact that it trades for nearly $400 a share may not help matters, either. The company had been pursuing a dual share class structure, with the prospect of a lower priced/lower voting rights Class B share, but has delayed the actual shareholder vote twice. A special meeting on the issue set for December was canceled and it's been crickets on the issue ever since.

CEO Sardar Biglari himself has been the subject of controversy, and one of the issues has been his compensation. That subject will no doubt come up at the annual meeting and not just because of a couple of related non-binding resolutions on this year's proxy. Under Biglari's incentive agreement, which was approved by shareholders in 2010, if growth in the company's adjusted book value exceeds 6% over the fiscal year, he is to receive incentive compensation equal to 25% of that growth, in excess of 6%. The incentive is subject to a cap of $10 million, and Biglari must use at least 30% of that incentive (pre-tax) to purchase Biglari Holdings shares in the open market, within 120 days of receipt.

During 2012, Biglari Holdings book value increased by 24.9%, so Sardar Biglari will be receiving the entire $10 million. Interestingly, much of that growth in book value was the result of price appreciation in Cracker Barrel shares.

I expect some potential fireworks at the annual meeting on this very issue. Biglari Holdings shares are down in price over the past year; in fact they are down over the past two years. That, taken in concert with the $10 million incentive, may not sit well with some shareholders. The company did achieve solid growth in book value; unfortunately, there's been a total disconnect with the share price. Biglari Holdings currently trades for just 1.37 times book value; at this time last year, it was close to 1.7 by my calculation.

All of this, however, just might bolster some support for the dual share class structure. It just does not make much sense that each Biglari Holdings share, which currently trade for $385, represents more than $300 worth of Cracker Barrel, and that does not account for other holdings, including Steak n Shake. Perhaps more share liquidity is, at least, part of the answer.

I for one am not all that concerned about short-term performance here, but there's plenty of controversy that might make for an interesting annual meeting.

At the time of publication the author held long positions in BH.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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