Biglari is Taking Aim at Unico American

Alex is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

For the second time in two years, the director nominees of Biglari Holdings (NYSE: BH) have been rejected by the shareholders of Cracker Barrel Old Country Store Inc. (NASDAQ: CBRL).  Biglari currently owns approximately 18% of the outstanding Cracker Barrel shares and is the company’s largest shareholder.  However, a superior stock performance and a more focused management appeared to trump valid arguments presented by Biglari. 

It is unclear what the next move for Sardar Biglari will be in this ongoing battle, but there is little doubt he has left his mark on the company.  What is clear is that Mr. Biglari has already lined up his next target: Unico American Corp. (NASDAQ: UNAM).

Unico is an insurance holding company that primarily offers property and casualty insurance through its subsidiary, Crusader Insurance Company.  Crusader is licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington.  However, the company notes that since 2004 all of the policies written by Crusader have been in the state of California.

Unlike Cracker Barrel, Biglari is not the largest shareholder in Unico.  The company’s founder and former executive, Erwin Cheldin (age 75), owns approximately 44% of the outstanding shares.  Furthermore, Mr. Cheldin, his son and two other directors have an agreement to vote their shares as a group, which amounts to a total of approximately 52.66% of the outstanding stock.  There are currently two other outside shareholders with significant positions in the stock.  Schwartz Investment owns approximately 8.9%, and Dimensional Fund Advisors owns approximately 9.1% of the shares outstanding.

According to the 13D filing by Biglari, the company has already been in contact with the management and the Board of Directors of Unico regarding ways to maximize shareholder value.    However, a statement later released by the management and board of Unico stated they have not had any “substantive communication with Sardar Biglari, Biglari Holdings Inc., or any representative thereof.”

Other than a few hills and valleys the stock price has been relatively flat for the last eight years.  Book value has been stagnant for the last four years or so and the stock regularly trades at a discount to book.  As of Sept. 30, 2012, book value per share stood at approximately $14.11 per share.

So given that management effectively controls the company, what is the angle here for Biglari?  We already know Mr. Biglari would like to acquire an insurance company.  He has already gone down this road before with Fremont Michigan InsuraCorp, Inc. and Penn Millers Holding Corp, both of which resulted in gains for Biglari, but not an acquisition.  An acquisition here seems unlikely, unless the founder’s son is ready to retire in his early 50's or a deal is made to keep him on so the old man can cash out.

If it is not an attempted acquisition, one glaring negative trend with Unico is the declining revenue in every year since it began only underwriting business in California.  An effort to expand into the states in which the company is already licensed could quickly reverse this downward trend and provide further upside momentum for the stock. 

Either circumstance could prove to be a positive catalyst for shareholders and a reason to keep Unico on your watch list.  Even if this turns out to be another Cracker Barrel for Mr. Biglari, his involvement may just be the disruption Unico needed.  I don’t think too many Cracker Barrel shareholders are complaining about the price of their stock since Mr. Biglari originally asked for a seat at the table.

ScavengerReport has no positions in the stocks mentioned above. The Motley Fool owns shares of Biglari Holdings. Motley Fool newsletter services recommend Cracker Barrel Old Country Store. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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