October 18, 2010

Board of Directors (“Board”)
Fremont Michigan InsuraCorp, Inc.
933 East Main Street
Fremont, Michigan 49412

To the Board of Directors:

Loeb Arbitrage Management LP and Loeb Offshore Management LP, together doing business as Loeb Capital Management, and affiliated entities (collectively, “Loeb”) have management discretion over 160,600 shares of Fremont Michigan InsuraCorp, Inc. common stock (OTC: FMMH) (“Fremont”), or approximately 9% of the company. The recently-revised offer from Biglari Holdings Inc. (New York: BH) (“Biglari”) compels the Board to engage in a sincere process to maximize shareholder value; more to the point, Loeb thinks it is incumbent upon the Board, in keeping with its fiduciary duties to shareholders, to sell the company to the highest bidder.

Fremont, an illiquid stock, has scarcely traded at or above its tangible book value per share during its capital market history. Fremont is substantially dependant on one state for its profits. With an A- rating from A.M. Best Company (“A.M. Best”) and a premiums-to-surplus ratio of roughly 1.4x, prospects for growth, and therefore multiple expansion, are limited. The management of Fremont has put forth a strategic plan to achieve USD 100 million of direct premiums by 2013. It is not clear that the company can reach this level of premium production without an equity financing or loss of its current A.M. Best rating. Assuming everything goes according to management’s plan (a potentially unreasonable leap of faith) and assuming a 95% combined ratio, Loeb estimates that this premium level could produce operating earnings per share of $3.00. The offer from Biglari represents a P/E multiple of nearly 10x prospective 2013 earnings. Considering the earnings multiples of comparable regional insurers, Loeb thinks it unlikely that the company on its own merits would trade at a valuation of 10x P/E in the marketplace.

As a significant shareholder of Fremont, Loeb is not in favor of further tactics that put off potential buyers of the company. It is time to put aside mechanisms and campaigns such as a poison pill with a low trigger, a staggered Board and a concerted effort to secure legislation limiting shareholder rights. Again, the Board owes shareholders a fiduciary duty to maximize the value of the company, particularly in light of the current circumstances. A path has been provided for the Board to maximize value for the owners of an illiquid equity in the near term. Please note that this letter should not create the understanding that Loeb would accept an offer of $29.00 per share; rather, Loeb is simply of the opinion that Biglari’s offer is credible and that the valuation is high enough to be a springboard for a value maximization process. Loeb reserves its rights as a shareholder to take such actions to secure value maximization. Further, we hereby request a meeting with the CEO and Chairman of the Board of Fremont as soon as is practicable but in any event no later than October 29, 2010. Please contact Alexander H. McMillan, General Counsel at (212) 483-7069 to arrange such a meeting. Additionally, we request that Fremont raise the ownership threshold which triggers its poison pill, thereby allowing Loeb to increase its holdings (notwithstanding the necessary approvals from the Michigan Office of Financial and Insurance Services). Finally, please note that Loeb reserves the right to buy or sell stock.

Thank you for your immediate attention to our request.

Sincerely,

/s/ Gideon J. King
Gideon King
President, Chief Investment Officer

/s/ Blaine Marder
Blaine Marder
Vice

Biglari Holdings Inc. (NYSE:BH – News) today announced a proposal to acquire 100% of the issued and outstanding shares of common stock of Fremont Michigan InsuraCorp, Inc. (OTC Bulletin Board:FMMH.OB.ob – News) that it does not already own for a purchase price of $29 per share in cash. The purchase price represents a 41% premium over the closing price of Fremont’s common stock on October 11, 2010. Biglari Holdings is presenting its proposal to the Fremont Board, expecting its Board to exercise its fiduciary duties and therefore meet with Biglari Holdings to reach a mutually satisfactory transaction.

Press Release (Biglari Holdings)

To preface, I don’t own any Biglari Holdings stock anymore. Biglari’s struggle for Fremont has been well documented on my blog. Initially, Biglari offered $24.50 per share in a combination of cash and stock. At the time, many derided the offer and said it undervalued Fremont because he was only willing to pay close to 90% of book value for the company. Eventually, the management team used their political pull in Michigan to introduce legislation which would impede his ability to pursue a hostile offer against the company.

The new offer is $29 per share or about 1.1x book value, which might be fair given Fremont’s current troubles. Fremont’s underwriting has deteriorated recently and posted a combined ratio of 108 in the last quarter, which means its operations are generating losses. Combined ratios are calculated by taking underwriting expenses + loss adjustment expenses and dividing them by the amount of earned premiums. A combined ratio of less than 100 means underwriting operations are profitable. More broadly, the insurance market as a whole is feeling the pressures of the low yield environment. Most P/C underwriters have had the bulk of their profits come from their investment portfolios, not their underwriting. The problem with this is that insurance investment arms typically take a levered bond fund approach and safe bonds aren’t yielding a whole lot right now. This puts insurers who are bad at underwriting in a precarious position. They face losses on both ends and so far the soft market (weak insurance pricing cycle) is showing no signs of persisting.

So in a way, it’s possible that a capital allocator such as Biglari could be helpful. If he could adjust the company’s current allocation split between cash and bonds, Fremont might be able to generate investment gains that would offset their underwriting losses. Right now Fremont’s investment portfolio is just under $70M with about 83% of it in bonds. Biglari reportedly already has an insurance executive on staff who would be brought in to turn around underwriting operations which have so far run into losses as they’ve grown their personal lines business.

It’s easy to see why he wants Fremont. Being able to add an insurer would help diversify BH’s business from being so dependent on fast food and would also add a business line which brings recurring earnings to the table. Plus, the float from the insurance business (which is smaller because of the short-tail nature of their claims), could be used as dry powder when pursuing activist investments or takeovers. Similarly, Mark Schwarz of Newcastle Partners has taken this approach by gaining control of Hallmark Financial (NASDAQ:HALL) and using it to then gain control of Pizza Inn (NASDAQ:PZZI).

While I don’t have a stake in this situation, it’s still fun to watch given the tactics being employed by both sides.

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.

This week’s New Yorker has a great article (New Yorker digital subscribers click here) by Malcolm Gladwell on entrepreneurship. Gladwell finds that entrepreneurs are actually not the high octane risk-takers that they are made out to be. Instead, successful entrepreneurs are highly rational actors, akin to predators who follow systemized patterns and go after safe prey. The article prominently features John Paulson’s CDS trade but also refers to a number of other fascinated entrepreneurs like Sam Walton and Ted Turner. While the article wont be available online for a while, I thought I’d quote some excerpts that I feel are worthy of discussion.

At 24 years old, Ted Turner became the CEO of his family’s outdoor advertising business after his father committed suicide. The business was actually quite good and threw off a lot of cash while requiring little by way of capital expenditures.

Turner sought to expand his empire and went after WJRJ, a UHF TV station that was down on its luck:

It was housed in a run-down cinderblock building near a funeral home, leading to the joke that it was at death’s door. The equipment was falling apart. The staff was incompetent. It had no decent programming to speak of, and it was losing more than half a million dollars a year. Turner’s lawyer, Tench Coxe, and his accountant, Irwin Mazo, were firmly opposed to the idea… The purchase price of WJRJ was 2.5 million. Similar properties in that era went for many times that, and Turner paid with a stock swap engineered in such a way that he didn’t have to put a penny down.

Most successful dealmakers that have built real empires all have the ability to find deals with great tax treatments. The Pritzkers of Chicago, John Malone of Liberty Media, and Sam Zell have all sought out these types of deals. Turner also recognized these benefits:

WJRJ’s losses could be used to offset the taxes on the profits of Turner’s billboard business. The television station, furthermore, fit very nicely into his existing business. Turner was very experienced at ad-selling. WJRJ may have been a virtual unknown in the Atlanta market, but Turner had billboards all over the city that were blank about fifteen per cent of the time. He could advertise his new station for free.

Most of these entrepreneurs use these deals to pick up NOLs at low prices which drastically reduce the taxes paid by the businesses they run. These boost profitability and gives them an advantage over competitors. Gladwell also seeks out academic research on entrepreneurship, in order to find patterns that are displayed my large groups of successful businessmen.

First, he cites the work of Michel Villette and Catherine Vuillermot (From Predators to Icons). One of the things that Villette and Vuillermot find is that most successful entrepreneurs are not one-hit wonders. Instead, they find some kind of inefficiency in the business landscape and actively exploit it:

There is almost always, they conclude, a moment of great capital accumulation — a particular transaction that catapults him into prominence. The entrepreneur has access to that deal by virtue of occupying a “structural hole,” a niche that gives him a unique perspective on a particular market.

Villette and Vuillermot go on, “The businessman looks for partners to a transaction who do not have the same definition as he of the value of the goods exchanged, that is, who undervalue what they buy from him in comparison to his own evaluation.” He moves decisively. He repeats the good deal over and over again, until the opportunity closes, and — most crucially — his focus throughout that sequence is on hedging his bets and minimizing his chances of failure. The truly successful businessman, is anything but a risk-taker. He is a predator, and predators seek to incur the least risk possible while hunting.

If you take a moment to think about businessmen and investors who have had extraordinary success, they all seem to exhibit this trait. Most great businesses occupy a space in their industry where they are protected by the wide moat of their competitive advantages. Usually, it is a result of growing and growing until you almost monopolize your sector.

John D. Rockefeller saw an inefficiency in the oil refinery market and quickly moved. He realized that by securing rates with the railroad companies, he could at least gain a cost advantage over competitors. He also realized the economies of scale that could be had by acquiring competitors. At the time, running an oil refinery was a terrible business, many became bankrupt. But Rockfeller was able to build Standard Oil with acquisition after acquisition and emerge with a monopoly.

Sam Walton saw that rural communities were not being served by large discount retailers such as Kmart. He didn’t just open one Walmart, he opened many, using airplane flyovers to find untapped markets that would also connect advantageously with Walmart’s supply-chain system. Walmart grew so large that competitors from urban areas were unable to penetrate his geographic foothold. Walmart was then able to enter urban markets with ease and topple competitors to become America’s most successful retailer.

Ray Kroc saw a market for America’s first nationwide fast-food chain as he sold milkshake machines around the country. What he found were great hamburger restaurants run by people with no entrepreneurial drive behind them to actually franchise them. After encountering McDonald’s in 1954, Ray Kroc sealed a deal to become the company’s sole franchisee and grew the hamburger chain outside of Arizona and California. Today, McDonald’s is the world’s biggest hamburger chain.

While Gladwell refers to John Paulson as an investor who has exhibited these traits recently, Sardar Biglari may be a better example. Biglari started his hedge fund using money from a tech company that he started and sold while in college. He then went on to one by one, target fast-food companies that had high concentrations of company-owned restaurants on their balance sheets. Many of these chains were quite old so it was likely that the real estate, recorded at a cost on the balance sheet, was dramatically undervalued relative to their current market values. All together, Biglari targeted five restaurant chains: Western Sizzlin, Friendly’s, Applebee’s, the Steak ‘N Shake Company, and Jack in the Box. Biglari was able to get on the boards and take control of both Western Sizzlin and Steak ‘N Shake, eventually merging the two. Applebee’s and Friendly’s were both bought out by other companies. Biglari’s least successful attempt was with Jack in the Box, but since he only agreed to exchange shares of Western Sizzlin for Jack in the Box, the cost was virtually nothing.

The other thing Gladwell finds is that most entrepreneurs are able to find inventive ways of financing their business ventures:

Giovanni Agnelli, the founder of Fiat, financed his young company with the money of investors — who were “subsequently excluded from the company by a maneuver by Agnelli,” the authors point out. Bernard Arnault took over the Bousac group at a personal cost of forty million francs, which was a “fraction of the immediate resale value of the assets.” The French industrialist Vincent Bollore “took charge of the failing family company for almost nothing with other people’s money.” George Estman, the founder of Kodak, shifted the financial risk of his new enterprise to his family and to his wealthy friend Henry Strong.

For the entrepreneur, cheap and secure financing can drastically improve the chances of an enterprise’s survival. By investing little of his own money, the entrepreneur can amplify returns on his own invested capital while keeping dry powder in reserve for new opportunities. Most successful real estate developers exhibit the same trait as do private equity firms, little equity is actually invested in the properties acquired in favor of debt. This often leaves the newly privatized properties in danger of default in the case of a sudden economic downturn, while keeping the fortunes of the owners largely in tact.

Gladwell emphasizes the fact that Ted Turner was also averse to using cash in his acquisitions. He explains by using Turner’s purchase of the Atlanta Braves as a case:

The team was losing a million dollars a year, and the owners wanted ten million dollars to sell…

He talked the Braves into taking a million down, and then the rest over eight or so years. Second, he didn’t end up paying the million down. Somewhat mysteriously, Turner reports that he found a million dollars on the team’s books — money the previous owners somehow didn’t realize they had… He now owed nine million dollars. But Turner had already been paying the Braves six hundred thousand dollars a year for the rights to broadcast sixty of the team’s games. What the deal consisted of, then, was his paying an additional six hundred thousand dollars or so a year, for eight years: in return, he would get the rights to all a hundred and sixty-two of the team’s games, plus the team himself…

Turner is a cold-blooded bargainer who could find a million dollars in someone’s back pocket that the person didn’t know he had.

Many successful businessmen and investors seek out hidden assets when doing acquisitions. Often, the value of assets are sometimes obscured by accounting or the market climate. One of Warren Buffett’s most famous investments was in the Sanborn Map company. In 1961 the stock made up 35% of his partnership’s assets and gave him a spot on the company’s board. Astonishingly, while Sanborn sold for $45 per share on the market, the company had an investment portfolio of more than $65 per share. At the time, a buyer of Sanborn stock received an undervalued investment portfolio and a map business thrown in for free.

Using research from economist Scott Shane, Gladwell delves into the notion that the entrepreneur is a risk taker and gives reasons for why entrepreneurs fail:

…many entrepreneurs take plenty of risks — but those are generally the failed entrepreneurs, not the success stories. The failures violate all kinds of established principles of new-business formation. New-business success is clearly correlated with the size of initial capitalization. But failed entrepreneurs tend to be wildly undercapitalized. The data show that organizing as a corporation is best. But failed entrepreneurs tend to organize as sole proprietorships. Writing a business plan is a must; failed entrepreneurs rarely take that step. Taking over an existing business is always the best bet; failed entrepreneurs prefer to start from scratch. Ninety per cent of the fastest-growing companies in the country sell to other businesses; failed entrepreneurs try selling to consumers, and, rather than serving customers that other businesses have missed, they chase the same people as their competitors do. The list goes on: they undermine marketing; they don’t understand the importance of financial controls; they try to compete on price. Shane concedes that some of these risks are unavoidable: would-be entrepreneurs take them because they have no choice. But a good many of these risks reflect a lack of preparation or foresight.

Some of the reasons for failure may seem counterintuitive to a person who is seeking to start their own business. Many may balk at the prospect of taking over an existing business, but if it is a forced sale due to owner’s health or a decision to retire, a budding entrepreneur may have the opportunity to acquire a good business at a low price. This kind of thinking requires the entrepreneur to employ the kind of rational judgment that is totally counter to the cowboy image the media perpetuates.

Another of these traits is not caring what other people think. Gladwell notes that many successful entrepreneurs are willing to risk their personal reputation for their business. He contrasts the behavior of banking CEOs who kept piling up bad investments because they feared standing out from the crowd with Sam Walton’s decision to seek financing from his in-laws a second time after failing at his first venture:

Villette and Vuillermot point out that the predator is often quite happy to put his reputation on the line in pursuit of the sure thing…

If an awkward family reunion was the price Walton had to pay for a guaranteed line of credit, then so be it. He went out of his way to take a personal risk in order to avoid a professional risk. Reputation, after all, is a commodity that trades in the marketplace at a significant and often excessive premium. The predator shorts the dancers, and goes long on the wallflowers.

If there is one thing that is really representative of the entrepreneurial stereotype, it is the unflinching persistence that seems to be exhibited by all the examples used in the article. Gladwell ends with a story about the lengths Turner went to, to take back his family’s outdoor advertising business:

He hired away the General Outdoor leasing department. He began “jumping” the company’s leases– that is, persuading the people who owned the real estate on which the General Outdoor billboards sat to cancel the leases and sign up with Turner Advertising. Then he flew to Palm Springs and strong-armed Naegele into giving back the business…

Naegele, by the way, asked for two hundred thousand dollars, which Turner didn’t have. But Turner realized that for some o ne in Naegele’s tax bracket a flat payment like that made no sense. He countered with two hundred thousand dollars in Turner’s Advertising stock…

“I had kept the company out of Naegele’s hands and it didn’t cost me a single dollar of cash.” Of course it didn’t. He’s a predator. Why on earth would he take a risk like that?

Here, Turner really serves as an example for all entrepreneurs. His father had sold General Outdoor and committed suicide shortly afterwards. Such an event must have been emotionally jarring for someone like Turner, but he managed not to be constrained by grief and moved into action. All of his decisions, from poaching personnel to exploiting his adversary’s tax status exemplified the kind of clear-sightedness that is necessary for long-term entrepreneurial success. For the entrepreneur and investor, being able to keep calm emotionally is an absolute need when faced with the daily competitive pressures and changing landscape of the market.

The entire article is worth the read, I would suggest seeking out a copy from your news stand or purchasing a digital subscription, these excerpts are just a small part of it. This is especially true if you are interested in John Paulson. Gladwell dedicates a large part of the article to discussing how and why Paulson managed to earn billions of dollars by purchasing credit default swaps.

From little more than a $1.8 million stake in a small chain of buffets, Sardar Biglari was now managing a holding company with a market value of more than $340 million. Though the company will likely end up growing through busi- nesses outside the restaurant industry, the Steak n Shake brand will continue to be its figurehead. And whether or not they thrive depends on if they can keep cus- tomers coming in the door. If the success of McDonald’s and In-N-Out Burger are any indication, a well-run restaurant chain like Steak n Shake can be both popular and profitable.

The Steak n Shake Company is now on solid footing. But the actual turna- round, one that may leave the company unrecognizable from its prior form, has just begun. “Naturally,” says Biglari, “we have a fairly lengthy journey before reach- ing our goals. We will do what it takes to prevail.”

The Restaurant Investor by Max Olson

Give it a read:

A Find in Freemont (PDF)

I’m going to start reading Fremont’s filings so I can get a better picture of the situation and make my own judgement.

Fremont is actually a company I’ve heard of before. Texas-based activist investor Harry Long has been lobbying for change there. Check out his whitepaper: Build Fremont (PDF).

I can’t be sure of whether Biglari agrees with Long, I know that the folks at Chanticleer have a different opinion of the company’s management. It will be an interesting company to watch though.

If past takeover attempts by Steak n Shake’s new chairman and chief executive are any indication, the 75-year-old burger chain soon may be recast as a corporate raider.

Sardar Biglari, the young Texan who took control of the Indianapolis-based company last year, has quietly remade the cheeseburger purveyor into a holding company — a business whose business is owning other businesses.

It gives the 32-year-old chairman of Steak n Shake an open hand to invest what the company calls “surplus cash” in whatever strikes his interest. In the past, those interests have included failed efforts to take over the bartering exchange service ITEX Corp. and California-based Jack in the Box.

Biglari’s new plan for Steak n Shake was noted in an amendment to a loan agreement with Fifth Third Bank reported by the restaurant chain to the U.S. Securities and Exchange Commission.

Biglari himself can tap Steak n Shake for “up to $10 million of surplus cash to make investments of any lawful nature,” says the July 8 report filed with the SEC.

It’s also nice to see Kevin Byun get quoted, he’s one of the brightest fund managers that I’ve had the opportunity to meet:

Kevin Byun, managing director of Denali Investors, a New York investor that owns shares of Steak n Shake, said he expects the holding company strategy could pay off as investments begin to lift Steak n Shake’s stock value.

“I’m actually quite optimistic with the whole holding company framework,” Byun said. “He has the authority to make investments over a wide area that will be to the advantage of Steak n Shake shareholders.”

Armed and ready to raid? (IndyStar.com)

Read the full article, there are a number of different takes on the situation.

Be sure

Steak n Shake recently disclosed plans to purchase Western Sizzlin, a steak restaurant chain that Mr. Biglari also heads.

The young activist — he is listed as 31 in a recent regulatory filing — became chief executive of Western Sizzlin in 2007 after buying shares and agitating for change at the company.

Ben Silverman, director of research at InsiderScore.com, said Mr. Biglari’s purchase showed his confidence in the outlook for the combined company. “The buying here is bullish,” Mr. Silverman said.

Mr. Biglari is “a value guy,” who has had plenty of opportunity to assess the worth of the business combination, Mr. Silverman added. “The proposed transaction seems to be the culmination of a two-plus year plan” to take control of both companies and combine their operations…

Mr. West said the proposed buyout was a “liquidity grab” by Mr. Biglari, a 33% holder of Western Sizzlin — more attractive for Western Sizzlin holders because those shares trade relatively infrequently.

Activist CEO Builds His Stake in Steak n Shake (WSJ)

Be sure to read the full article, it’s short.

Here’s what I said:

One thing I’m wondering is whether we’ll see a merger between Steak N Shake (SNS) and Western Sizzlin (WEST). It would be a little similar to what Eddie Lampert did with Kmart and Sears. The same could happen with Steak N Shake with Western Sizzlin since both are in the restaurant industry, we could see some cost savings and synergies achieved by merging. Although getting the financials to work out, especially currently, would be a major stretch.

Sardar Biglari is CEO of Steak N Shake! (Street Capitalist)

At the time it seemed highly unlikely because Steak N Shake had a number of issues relating to debt and management that needed to be worked out. The common thread here is value investor Sardar Biglari, who manages the Lion Fund. As chairman of both companies, Biglari has implemented a holding company structure in both of them.

The real benefit here is simplification in the organization structure. Merging both companies will preserve the benefits and reduce the redundancies of running two different holding companies.

So let’s look at the transaction and figure this out. For shareholders, the changes are on the WEST side rather than the SNS side.

The Letter of Intent contemplates that on or prior to closing Western will distribute to its stockholders all of the SNS shares beneficially owned by Western. Further, under the terms of the Letter of Intent, the consideration payable to Western’s stockholders will be based on a net transaction valuation of approximately $22,959,000.00. At closing, each share of Western’s common stock would be converted into the right to receive an amount equal to approximately $8.11 in the principal amount of debentures issued by SNS. It is anticipated that the SNS debentures will have a term of five (5) years, will bear interest at the rate of 14 percent per annum and will be pre-payable without penalty at the option of SNS after one (1) year from the date of issuance.

The Steak n Shake Company and Western Sizzlin Corporation Announce Intent to Merge

From Western Sizzlin’s 10Q we know that Western Acquisitions owns 1,5553,545 shares of SNS. Shareholders of WEST own 85.1% of Western Acquisitions. So this means that WEST shareholders control 1,322,066.79 shares of SNS. There are 2.38M shares of Western Sizzlin outstanding.

1 share of WEST = 0.466 shares of SNS + $8.11 in SNS debenture.

The debentures pay a rate of 14% per annum, creating an added incentive for WEST shareholders. For SNS shareholders, I think the real question is going to be whether or not the integration of WEST adds any real benefit to justify the debentures. I would guess that there is a long term benefit from owned Western Sizzlin. Western Sizzlin’s restaurant operations alone will likely add about $2.2M per year in FCF which could be used for accretive investments which would benefit shareholders of Steak N Shake.

Today is the Western Sizzlin annual meeting in New York. I expect that we’ll see some interesting conversations come out there. I’ll be sure to link to any blogs that post up notes from the meeting. I’m sure more details surrounding the proposed merger will be out by then so we can do a more comprehensive analysis.