Another “Friendly” Deal? - by Phillip Ristau

Why would anyone invest in SNS? There may be a catalyst. There is a proxy fight to gain two board seats by tenacious value investor Sardar Biglari. A sale of Friendly Ice Cream was announced about 9 months after he disclosed his initial 13D filing in 2006 for about twice his average cost.

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Putting it all together, SNS’s earnings are worth $78 million in three years, discounted at 10% equals $59 million or $2.06 present value per share for the pure-franchise model. In addition, a sale/leaseback plan for the real estate would generate $5.97 a share for the 155 properties it owns. Finally, refranchising 435 units might generate $435 million, or $15 per share. Since this operation would take time, I use a 10% discount rate and a three year time frame. I derive a present value of refranchising of $327 million, or $11.47 per share.

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Thus, intrinsic value is $2.06 future earnings + $5.97 sale/leaseback proceeds + $11.47 refranchising cash for a total intrinsic value of $19.50 per share. SNS is currently trading around $11.