I think most of my readers will be familiar with Biglari Holdings, the company run by Sardar Biglari. He likes to present himself as a young Warren Buffett and to complete the picture he has even gone as far as copying the general design of berkshirehathaway.com. But while he talks to talk, he doesn’t walk the walk. The company is quickly becoming an interesting case study in creative ways to screw shareholders. The license agreement that would entitle him to receive royalties for the use of his name if a change of control occurs is especially ridiculous.

As a result Biglari Holdings is trading at a depressed valuation and, despite Sardar’s tight control, it has attracted the attention of the activist investors at Groveland Capital. They announced a small stake in the company in November together with the intention to acquire a board seat. Biglari Holdings is a target that is bigger than usual for them since they are mostly active in the micro cap space. They did for example briefly own Solitron.

Pretty ironic to see an activist investor taking aim at the firm of a fellow activist investor, but what we have so far is just an interesting story (that’s mainly why I follow Biglari, it’s fascinating). But this all changed when Biglari decided to respond. He was apparently “op z’n pik getrapt” and decided to retaliate against Groveland by taking a large stake in a couple of of small companies that they own: Air T and Insignia Systems. I have no idea what his thought process exactly was behind this move, but Biglari’s buying has fueled both stocks to new highs.

Based on the poison pill that Air T quickly adapted I think Groveland is worried that Biglari will try to gain control over the company without paying all shareholders an appropriate premium. That makes sense because he obviously doesn’t want this to be beneficial to Groveland, but it has been pretty great so far for shareholders that have flexibility in selling shares.

Since 21 November, the date Groveland made their intentions known, Air T has advanced from $16.50/share to a high of $27.20/share: a gain of almost 65% while Insignia Systems gained almost 50% when it went from $3.00/share to a high of $4.45/share. Both stocks have dropped from the recent highs because it seems that Biglari has stopped buying:

This massive increase in share price is unrelated to the fundamental development at both companies. Biglari has been very aggressive in acquiring a position. He now owns 338,500 shares (representing a 15% stake) of Air T and he probably bought the majority of this stake in just a couple of days based on the trading volume. That’s in my opinion pretty retarded since that would normally be a complete month of volume. His buying spree in Insignia Systems has been equally ridiculous. He now owns 2.3 million shares (close to a 20% stake) while the daily trading volume in the month before December was usually around 20,000 shares. When someone is buying so fast a big price impact shouldn’t be a surprise.

Because of this I thought that shorting some Air T was a good idea. I didn’t go for Insignia Systems because it had a more expensive borrow, and Air T was at that moment still trading near its highs. That proved to be excellent timing since the stock dropped almost 15% in a few minutes after I tweeted this:

Decided to short $AIRT today. Basically betting that Biglari is a retard. — Alpha Vulture (@AlphaVulture) 19 december 2014

I’m guessing that both stocks will soon go back to the original price level, although Biglari remains an unpredictable factor. So far he already overpaid a couple of million dollars just to make a point, and it is of course easy to waste some more money if it isn’t your money. One thing is certain: entertainment value is almost guaranteed!

Disclosure

Short AIRT, no position in ISIG or BH