The bloodbath that Biglari Holdings (BH) endured on Friday, when it fell 20%, was on volume of just 76K shares, which is more than 12X normal average volume. It came in the wake of the company's adoption of a dual share class structure at Thursday's special shareholder meeting.
Here's the rub: the company was dropped from the S&P 600 Small Cap Index after that vote, as the index does not allow companies with dual share classes. Since the vote to adopt the dual share class was a forgone conclusion given that management owns more than 55% of the stock, BH's exit from the index should have been no surprise to the market.
However, the shares dumped onto the market by the index funds and ETFs that needed to purge their BH holdings overwhelmed the supply/demand dynamic, and there was simply not enough demand among investors. Part of that lack of interest, at least among current shareholders, may have been do to Thursday's rather unimpressive shareholder meeting, or perhaps some are waiting for the possibility of even lower prices today.
Glutton for punishment that I am, I did increase my BH holdings on Friday. I did so with the realization that the selling may continue today, as the reconstituted S&P 600 Index begins trading tomorrow, so there may be some more fund selling of BH shares today. The question is whether there will be any buyers to sop up those shares, unlike Friday.
Already undervalued in my view, despite the company's confusing structure, and other issues, BH's market cap at $700 million after Friday's beating, is below that of its near 20% stake in Cracker Barrel (CBRL) , which is worth $769 million alone. That's in addition to other assets including the company's fully-owned Steak n Shake restaurant subsidiary. Although it has struggled recently, it is still a valuable brand, and includes ownership of the 153 locations (land and buildings).
Friday's activity only deepened the "Biglari discount", my own term to describe the haircut markets have placed on the company's value due to its controversial nature. The plot should thicken once both of the company's share classes begin trading.
Here's a rather sobering statistic: Including Friday's activity, BH is up 7% dating back to the beginning of 2009 while the S&P 500 is up 109%. Cracker Barrel is up 275% during the same period. Since BH began acquiring CBRL shares in 2012, CBRL is up 195%, while BH is down 3%. Something is not right with this picture.
As I mentioned in Friday's column, the only money made by BH shareholders over the years has been through buying on the dips. We are still waiting for all of the value to be unlocked.