I woke up this morning to read that Western Sizzlin (WEST) is going to commence an exchange offer for up to 680,500 shares of JBX. The offer values JBX at $22.66. For reference the market capitalization of WEST is $38 million and JBX is $1.1 billion. If all the shares are tendered it would represent only about 1% of the outstanding shares of JBX.

The CEO and controlling shareholder of WEST is Sardar Biglari. Mr. Biglari holds a 35% interest in WEST through The Lion Fund L.P., a private investment partnership. Mr. Biglari is the general partner of The Lion Fund L.P., which is an activist hedge fund. WEST and The Lion Fund have bought positions in a several public restaurant companies that were perceived to be value plays. In the past, Mr. Biglari has been very public about putting pressure on senior management of these public companies to unlock shareholder value. Until WEST files its S-4, Mr. Biglari’s intentions are unknown.

JBX’s management is one of the more impressive management teams in the restaurant industry. That is not to say that they are managing the business perfectly and that there are no levers to pull that could create shareholder value, but in this environment not much is going to get done. JBX is clearly a value stock trading at 5.0x NTM EV/EBITDA.

So what could Mr. Biglari be thinking?

First, JBX operates and franchises Jack in the Box restaurants and Qdoba Mexican Grill. In the past, many have speculated that the company should spin-off Qdoba to create vales for shareholders. I am not sure how that scenario would work in this environment. The company also operates more than 60 proprietary convenience stores called Quick Stuff®, which include branded fuel stations. While the Quick Stuff’s are developed adjacent to a full-size Jack in the Box restaurant, it is not a core competency of the company. This would be a clear target for any investor looking to sell off non-core assets.

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