By David Benoit
Sardar Biglari, the activist investor whose eponymous company
owns the Steak 'n Shake burger chain, likes to tell his
shareholders they are betting on him.
" Biglari Holdings is a jockey stock," he wrote in a 2011 letter
to shareholders. "You are choosing the jockey; I am choosing the
horses."
Now another activist investor is trying to grab the reins.
Groveland Capital LLC has taken a 0.2% stake in Biglari Holdings
Inc. and is asking at a shareholders' meeting Thursday in New York
to oust the entire board, including Mr. Biglari, 37, who is
chairman and chief executive.
In response, Mr. Biglari, best known as a Warren Buffett wannabe
who waged a yearslong campaign against Cracker Barrel Old Country
Store Inc., has launched activist fights at two small companies on
which Groveland has board seats.
Activist investors take stakes in companies and push for
financial and operational changes. They are growing in prominence
as they take on larger targets with more sophisticated proposals,
and in recent months have won board seats at big companies such as
Dow Chemical Co., Bank of New York Mellon Corp. and Sotheby's.
And then there is this fight.
"One could fairly worry that this proxy fight represents the
jump-the-shark moment for activism," said Greg Taxin, an activist
investor who co-founded shareholder advisory firm Glass Lewis &
Co. "Serious activism can improve performance and enable more
efficient capital markets. This isn't that."
Groveland, a $25 million hedge-fund firm in Minneapolis, has a
laundry list of complaints about Mr. Biglari's performance and
wants him out of the nearly $900 million company he has tried to
model on Mr. Buffett's Berkshire Hathaway Inc. Groveland, founded
in 2009 by former distressed-debt trader Nick Swenson, 46,
complains about Steak 'n Shake's performance, Mr. Biglari's
compensation and his recent purchase of men's magazine Maxim.
In letters to Biglari's shareholders, Groveland turns to Mr.
Biglari's own words.
"Like Mr. Biglari, we believe 'shareholders are the true owners'
of a company, and 'they should decide whether or not an entrenched
board is good policy,'" Groveland wrote. That is what Mr. Biglari
said eight years ago in a battle for Friendly Ice Cream Corp.
Mr. Biglari, meanwhile, has accused Groveland of trying to take
over his namesake company without paying a premium. He says the
firm hasn't explained what it would do with Steak 'n Shake.
"Groveland's 'plan' for our business is really no plan at all,"
he said in a letter to shareholders.
That is pretty much the same thing Cracker Barrel said of Mr.
Biglari's proposal to shake up the board of the restaurant chain,
where he has lost four separate votes.
"He hasn't raised specific new ideas or suggestions to
management or the Board, despite having many opportunities to do
so," Cracker Barrel wrote in 2012.
Mr. Biglari also has questioned the judgment and experience of
Groveland's nominees, pointing to the Facebook page of Groveland
portfolio manager Seth Barkett. "I made a million dollars today,"
Mr. Barkett wrote in 2008. "How was your day?"
"If that's the best Mr. Biglari has on me, going into my
Facebook account, then I think I'm in a pretty good spot," Mr.
Barkett told a group of investors last week.
Institutional Shareholder Services Inc., which advises
shareholders on board votes, took a rare stance when asked to weigh
in on the Biglari-Groveland fight: There isn't a single board
candidate on either side worth supporting, it said.
"Neither choice is appealing," ISS wrote.
Both sides claimed that as a victory.
For Mr. Biglari, it all started in 2008 when he won a
shareholder vote to join the board of what was then known as the
Steak 'n Shake Co., which was struggling under a heavy debt
load.
Mr. Biglari became chief executive, slashed costs and cut prices
to attract more customers. He emphasized the chain's burgers,
milkshakes and chili. Steak 'n Shake's results improved
dramatically in his first year, though profits have slipped in
recent years as the company spends to expand its franchised
locations.
In 2010, he re-christened the burger company Biglari Holdings
and told investors he viewed the company as a platform to buy other
businesses.
Mr. Biglari also rebranded Steak 'n Shake to include his
surname. The new "Steak 'n Shake by Biglari" must pay its namesake
a portion of its revenue if he loses control of the company. He
could be entitled to about $100 million under the deal if he loses
Thursday's vote.
In annual letters to shareholders, Mr. Biglari philosophizes on
business and warns investors they will have to deal with "our
idiosyncrasies." He has said investor relations departments are a
waste of resources, hosts no quarterly conference calls and chides
investors who look to analyst opinions.
Some of his decisions, like the Steak 'n Shake rebranding, have
alarmed Groveland and others.
"Mr. Biglari and the board have arranged, especially through the
2013 licensing agreement, for Mr. Biglari to become a sort of 'CEO
for Life.'" Mr. Swenson said in an email. "By running a competitive
slate of directors we're giving shareholders a choice."
Mr. Biglari has responded to Groveland's attacks in kind.
In December, he built up a 14% stake in Air T Inc., a cargo
airline whose board Mr. Swenson chairs, and 19% of Insignia Systems
Inc., a retail-marketing company that counts Mr. Swenson among its
directors.
This time, Mr. Biglari took a page from Mr. Swenson's
playbook.
"He implements governance practices far worse than those he
previously criticized," Mr. Biglari said.
Write to David Benoit at david.benoit@wsj.com
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