On a rocky day for stock markets generally, shares of restaurant holding company Biglari Holdings (NYSE:BH) made a big move upwards Tuesday, gaining 6% in response to a massive insider purchase by company CEO Sardar Biglari.
According to a July 6 Form 4 filing with the SEC, Mr. Biglari spent upwards of $258.8 million on July 1 to acquire 616,312 shares of his own company at an average purchase price of $420 per share.
Technically, the shares were purchased by “The Lion Fund,” an investment fund that is majority-owned by Biglari Holdings itself, but controlled by Mr. Biglari. The Lion Fund acquired the 616,000-odd shares through a tender offer in which it invited outside shareholders to “tender” their shares to it for purchase.
Whether you consider the purchase decision to have been made ultimately by Mr. Biglari, or by one of the companies he controls, however, investors appear to be taking the news as a “positive” as word of it continues to filter out. Hence the rise in stock price.
What does it mean to you?
But does this mean that you, too, should be buying shares of Biglari Holdings? That depends. On the one hand, the fact that Yahoo! Finance is currently quoting Biglari Holdings shares as selling for a P/E ratio of just “2.15” is certainly intriguing. The fact that this same website warns the company costs “40.54” times what it’s expected to earn next year, on the other hand, is equally disconcerting.
Ultimately, though, what investors may be betting on is not the valuation of Biglari Holdings shares per se — but the likelihood that Mr. Biglari is angling to take his company private, perhaps paying them a premium in the process. As Forbes magazine reported last week, the results of the Lion Fund tender offer put 49% of Biglari Holdings’ voting shares under the control of the company’s CEO — this despite the fact that Mr. Biglari owns only 1% of the shares directly.
This increasing concentration of control of the company under one man’s hands could be a positive if Mr. Biglari takes the next logical step, and moves to take his company private. Given that Mr. Biglari already “holds” control over Biglari Holdings, though, there’s no guarantee he will see a need to go through the motions of a going-private transaction.
He may also see no need to pay a premium to outside shareholders to make that happen.
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