Street Capitalist: Event Driven Value Investments

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Street Capitalist: Event Driven Value Investments

Trouble in Michigan

Anyone who has followed this blog for a while knows that we are fans of Sardar Biglari and his work at Steak N Shake (now Biglari Holdings). One of Biglari’s goals is to add an insurance operation to the holding company. This would add a number of benefits to BH, namely the fact that its float could be redeployed into accretive investments.

Lawmakers in Michigan seem intent on curbing his efforts:

A bill wending its way through the Legislature aimed at protecting a small insurance company from a hostile takeover will have a chilling effect on investment and job creation in the state, an opponent said today.

Sardar Biglari, CEO of San Antonio-based Biglari Holdings, which owns 19 Steak ‘n Shake restaurants in Michigan, said the measure — which passed the Senate last month to block his company from acquiring Fremont InsuraCorp. of West Michigan — sends the wrong message to potential investors.

“This bill will send a signal that Michigan poses greater risks, greater uncertainty than other states,” said Biglari, who was in Lansing to meet with members of the House Insurance Committee, which is scheduled to take up the bill Thursday.

He said his holding company has no intention of moving the small insurer out of Michigan or of laying off its 75 employees. The only change in the works is to replace the company’s CEO, he said…

The legislation would require approval of two-thirds of outstanding shares of a company to elect director candidates who are not backed by a majority of that company’s board of directors. Biglari, who owns nearly 10 percent of Fremont InsuraCorp., said the bill would make it “nearly impossible to consummate the transaction.” He said the measure dilutes shareholder rights.

Biglari added he’s looking to acquire other businesses in Michigan and said the outcome of this legislation “will determine our level of interest.”

Cobb said the bill is narrowly tailored to block the takeover of Fremont and would affect only a couple other companies in the state.

“We don’t think it will have an effect on outside investment,” he said. “Shareholders will still have their say.”

Bill seen as roadblock to takeover of Fremont insurer

The really unfortunate thing here is that if a company in Michigan underperforms, with legislation like this in place, it will be extremely difficult to turn them around. Shareholders will have a say, but it will be weakened. Michigan should by now be well acquainted with how insulated management teams can run amok, after all, US taxpayers had to bailout their state when GM and Chrysler went bankrupt. It seems as if they haven’t quite learned the lesson yet.

Category: Insurance, Insurance stocks, Sardar Biglari, SNS, Special Situations, Superinvestors, Value Investing

  • http://psychiatry.tumblr.com/ psychiatry

    In relative terms the GM debacle is the backdrop for this new legislation. The corporate climate in Michigan is uncertain and this is protectionism. It backfires because it is exactly what Biglari calls it, 'uncertainty' – nobody wants to deal with policy that is uncertain especially if it has goals to limit investment and corporate actions. The state of Michigan will feel the burn so to speak when the innovation of their state is apparently lacking. A small fast food chain cant buy an even smaller insurer if the directors want it? This is not about finance, it is now about policy and protectionism. Shame on Michigan for trying to prevent a disaster their own policies (union support) did for GM. It doesn't work that more legislation fixes the underlying issue.

    psychiatry.tumblr.com

  • psychiatry

    In relative terms the GM debacle is the backdrop for this new legislation. The corporate climate in Michigan is uncertain and this is protectionism. It backfires because it is exactly what Biglari calls it, 'uncertainty' – nobody wants to deal with policy that is uncertain especially if it has goals to limit investment and corporate actions. The state of Michigan will feel the burn so to speak when the innovation of their state is apparently lacking. A small fast food chain cant buy an even smaller insurer if the directors want it? This is not about finance, it is now about policy and protectionism. Shame on Michigan for trying to prevent a disaster their own policies (union support) did for GM. It doesn't work that more legislation fixes the underlying issue.

    psychiatry.tumblr.com

  • Guest

    In regards to “if a company in Michigan underperforms”….Fremont Insurance is not underperforming. Why do you think this situation is called “hostile”. Biglari would not be after a failing company with no float to fund his agenda. Nor would he be investing in one. Fremont would not resist if they were failing. They believe in what they are doing, not interested in Biglari's ideas and are fighting for their survival. .

  • http://www.StreetCapitalist.com Tariq

    I agree – Fremont is not failing. But, when you get this kind of political protectionism, which helps insulate the management of companies from shareholder pressure, you make it much easier for them to get lazy and start under performing. It's kind of a moral hazard or unintended consequence.

About Me

My name is Tariq Ali, I run Street Capitalist. I recently graduated from the University of Texas at Austin. There, I stumbled onto value investing via the school library. I read everything I could and now I'm here, writing out my thoughts and investment ideas.


I have a lot of heroes when it comes to investing, it seems like every investor has some kind of niche. Some, whose books and writings have had the biggest impact on me are: Warren Buffett, Benjamin Graham, Joel Greenblatt, Seth Klarman, and George Soros.


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