Tuesday, February 24, 2009

Western Sizzlin' Annual Meeting Notes 2008

With a bit of egging on from Kyle at Compounding Machines, here are my notes from the Western Sizzlin' Annual Meeting, which was held on July 9th, 2008 in New York City... It only took me 7 months to get them up!

Here is the preceding Chairman's Letter. Also, you should check out Jeff Annello's notes-they are a much more complete than mine, hopefully, I added to his thoughts.

Overall, there were around 45 people in attendance, all of whom were pretty young. I was astonished that I, being 23, was not the youngest person there-which has historically been the case at shareholder meetings. I met, and talked to some new people-all of whom had interesting stories and ideas to share. No surprise, but there were a ton of fund managers there... I should have asked them how they went about starting their funds, but that's a whole different story.

Here are the issues that were addressed, in roughly the order that questions were asked; with a little bit of my own commentary... Keep in mind it has been 7 months, so some of it is a little fuzzy.

Reverse stock split/NASDAQ listing
  • Hopeful of reducing transaction costs
  • Wanting to reduce the spreads related to share price...
Capital allocation possibilities
  • Dividends, common stocks, whole companies, etc.
Bob Moore was introduced as the CEO of Western Sizzlin' Franchise Corporation
  • Previously involved with Whataburger, Sonic, GE, and Merrill Lynch.
  • Had yet to sign a contract with the company (a testament to the culture of WEST)
  • Overly enthusiastic about contacting franchisees, finding out their intentions on growth, and restoring a good relationship with them (similar to what Tim Taft did at Pizza Inn.)
  • Constantly asking himself "what is best for the brand?"
  • Spoke of unit economics and how the new prototypes are incredibly scalable.
  • Noted that year over year sale for new restaurants can be deceptive, since when a store initially opens, it does quite well, with traffic eventually dropping off.
Steak n' Shake
  • Biglari noted the sizable ownership that WEST has.
  • Stated that he had been spending 17 hours a day reviewing the workings of the company and re-allocating capital.
  • Joked with Phil about how everything that could have gone wrong, had gone wrong.
  • Stated that the boardroom had a 'collegial' setting, and that the other members were coming over to their line of thinking. Also noted that age restrictions would change the makeup of the board.
  • Franchisees are interested in opening more locations, and historically, make sales go up when a unit is re franchised.
  • Made mention of tax savings
Land Acquisition
  • Kenneth Cooper addressed the lands developed good value when it was altered- so that the flood plain wouldn't be an issue.
  • The property has 1,400 linear ft facing I-10, and is on the Rim in San Antonio, where there are over 800 acres of mixed use land.
  • Noted how hard it had been to acquire, since there were 9 different owners of the 23.5 acre plot.
  • Said "you make money when you buy real estate" as I am a small time landlord, I will attest to this being true.
  • "Comfortable" with the position WEST has.
  • A hedge fund manager stated that International Monetary Systems had been sought by Itex to buy them, rather than go with a WEST purchase. Obviously, they were/are on the verge of insolvency and in no position to buy Itex!
  • Learned that un-solicited offers generally are not received well, and that solicited ones are very friendly, but generally cost the acquirer more money.
Call Options
  • Bought with the intention to call and keep the stock-due to the rights offering that WEST did to raise cash.
  • Will most likely use strategy in the future, despite bad results with SNS.
  • Has been looking for insurance companies to buy, though, non have been attractive.
  • Mentioned a small Texas company run by 1 guy, who insures cars that cross the border for a few days at a time.
  • Noted that insurance is not necessary, Buffett started in textiles... it's all about buying undervalued assets.
  • Eventually hopes to buy a well managed property and casualty company on the cheap.
Rights Offerings
  • Rights offerings are the cheapest way to get capital, and you don't deal with the fixed costs of an investment bank.
  • Noted that while ownership may be diluted, there is more capital to allocate.
Other Points
  • Noted that the business is highly decentralized, essentially running it's self.
  • The depreciation WEST has is accounting, not economic.
Books mentioned

  • Equity Analysis by John Stowe
  • Wisdom of Crowds by James Surowiecki
  • Unwarranted Intrusions by Martin Fridson
  • Fooling Some of the People, All of the Time by David Einhorn and Joel Greenblatt

Overall, it was a great meeting and totally worth the trip. I plan on going back this year-after all, it is certainly a good excuse to meander around Manhattan for a few days- eating fresh sushi just about every meal!

Disclosure: I am long SNS and ITEX, I have no holdings in WEST.

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