2014: A Blowout Compensation Year for Sardar Biglari


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Biglari Holdings (Steak n’ Shake) recent 10-K filing discloses that its chairman and CEO Sardar Biglari, has earned an incentive fee equal to $34,406,000 in 2014 and $14,702,00 in 2013 from his unusual, but personally enriching relationship with two investment partnerships he manages, and in which Biglari Holdings owns 88% of the market value of the investments. Biglari’s payout is on top of $2,700,000 in salary and $20 million in bonus payments he’s received from the company since 2012.

Here’s how it works: Mr. Biglari is the general partner for two investment partnerships, Lion Fund and Lion Fund II, by which he earns a 25% incentive fee above a 6% hurdle rate on the portion of the fund that the public company, Biglari Holdings, has invested in the partnerships. As of December 31, 2014, the value of the investments in both funds was $776.9 million.

What makes this arrangement so unusual is that prior to May 2013, most of the investments were held by the public company and its shareholders. In fact, according to Groveland Capital’s proxy filings, the board of Biglari Holdings originally endorsed the concept that “shareholder interests would be best served if Mr. Biglari operated both the investment management business and the restaurant business from within Biglari Holdings.”

However, in 2013 and 2014, the Biglari Holdings (i.e. Sardar Biglari) changed its (his) mind.  The company transferred cash and securities it owned (primarily shares of Cracker Barrel) worth $174,418,000 and $377,636,000 respectively, in exchange for limited partner interests. It then sold back to Sardar Biglari, the general partner of the two funds. Voilá! Biglari gets paid on both ends, first by the company and then as general partner of the Lion Funds.

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