SNS/WEST Merger

I have received some questions via email regarding the potential SNS/WEST merger:

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.

My thoughts are that this is good for SNS shareholders as they are getting a good amount for the $22.9 million, which includes 9% of ITEX (OTC: ITEX), 51% of an asset management company (Mustang Capital Partners ~10.6 MM AUM), a 23 acre parcel of land in Texas, and a restaurant and franchise business generating $1.5-$2 MM in operating profit per annum. Also, the transaction is essentially an LBO with no equity. The 14% interest on the $22.9 MM may seem high, but it should be thought of as a premium for Western Sizzlin shareholders and I would imagine it would paid off after one year. In addition, Steak 'n Shake is much more liquid than Western --- a plus for WEST shareholders. As a Western Sizzlin shareholder I would have preferred an all stock deal, but Biglari knows that SNS is undervalued and this potential transaction is not dilutive for SNS in any way as Western shareholders are getting the SNS shares that they already own. This also simplifies things for Biglari as now there is one capital allocation vehicle going forward (excluding The Lion Fund) and there are cost savings for Western as it would no longer be a public company.


*The author has positions in Western Sizzlin and Steak 'n Shake. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.