NEWS

Business Insider: Biglari Holdings fight can do damage

John Ketzenberger

For most of us who like steakburgers and side-by-side milkshakes, April 9 will be just another day to decide whether to smother our fries in cheese.

But the day may deliver a dose of what-goes-around-comes-around for Sardar Biglari. The man who wrested control of Steak ’n Shake in a 2008 proxy fight himself faces a dissident shareholder of Biglari Holdings, the company that now controls the fast-food restaurant.

Groveland Capital, an investment firm based in Minnesota, purchased enough shares in Biglari Holdings to press for a change in control last November. Nick Swenson, the firm’s chief executive officer, has nominated a slate of new board members and agitated for a change in control. Swenson said he and his Groveland-backed board can do better.

Swenson’s arguments sound eerily familiar to those of us who watched Biglari push aside Steak ’n Shake’s long-term management, led by Wayne Kelley. Swenson complains about the company’s poor stock performance, Biglari’s complicated and generous compensation package and the company’s lack of focus on strategy.

Biglari, who was a brash 30-year-old when he launched his takeover bid, fired back in a letter to shareholders alleging that Swenson has associated with a felon and that Groveland’s slate of directors is too inexperienced.

It has become a bitter and personal battle for control of a company that owns Steak ’n Shake, Western Sizzlin, Maxim Magazine and First Guard, an insurance company. I admit to some interest in seeing Biglari, a self-proclaimed acolyte of corporate icon Warren Buffett, tussle with Swenson.

Looks like a couple of corporate bullies stepping outside for a fight, and if we’re lucky, they’ll both end up bruised. There’s something to be said for them both getting knocked down a peg or two, except this fight will occur at the swanky St. Regis Hotel at 55th Street and Fifth Avenue in Manhattan.

Swenson and Biglari likely won’t suffer anything other than bruised egos — if indeed corporate raiders are sensitive enough to reflect on their egos. Their fight, however, can do real damage.

It can destroy the share price, which would hurt investors in several big funds that own large chunks of Biglari Holdings stock, including Dimensional Fund Advisors, the Vanguard Group, Janus Capital Management and Piper Jaffray Cos.

Worse, the proxy fight could cost real people their jobs. Biglari controls the fate of 500 Steak ’n Shakes, 75 Western Sizzlin’s, the magazine and the insurance company. That’s thousands of jobs across the country, and Biglari is not afraid to assert his control.

As it says on the “Investor Info” tab on Western Sizzlin’s website, “all major operating, investment, and capital allocation decisions are made for the company and its subsidiaries by Sardar Biglari, founder, chairman and chief executive officer.”

In other words, a publicly traded company run as if it were privately held.

So it’s no surprise Biglari’s apparent alter ego, Swenson, would challenge his authority, hence the proxy fight. People who use every nuance of the Securities and Exchange Commission’s regulations to leverage control of a public company always seem to be itching for a fight.

You won’t be surprised to learn, then, this is not the first time Swenson has scrapped to gain control of a company. He led Groveland’s successful attempt in January 2013 to elect three new members to medical device maker Pro-Dex’s board, and now he is chairman of the company.

In the week since Biglari blasted Swenson, Wall Street has taken notice, but the wise guys are split, too.

Aurelien Windenberger, writing for Seeking Alpha, praised Biglari’s track record. “While (critics) are absolutely correct that the stock price has not done very well over the past five years, I will argue that shareholders have done and will do very well in the long run by keeping Biglari in charge,” Windenberger wrote in a March 23 post. “Biglari has a 15-plus year record of exceptional value creation for shareholders, one that I expect will continue in the future.”

Not bad for a guy who’s just 37. It’s a position opposite of one posted March 20 by Antoine Gara on the Investing blog for Forbes. The headline for Gara’s post: “The implosion of a Warren Buffett wannabe.”

“As Buffett prepares for his ‘Woodstock for capitalists,’ which is expected to draw over 40,000 shareholders to Omaha this May,” Gara wrote, “Mr. Biglari is bracing to meet a long line of angry investors at his Berkshire-styled meeting after taking $34 million in incentive-based pay in a year when his stock tumbled over 20 percent, adding to a trend of dramatic under-performance.”

Whoa. It’s a toss-up.

Instead of a trip to midtown Manhattan on April 9, I think I’ll succumb to the sweet clatter of spatula-on-griddle and take assurance in the slogan, “In sight, it must be right.” I’ll skip the proxy fight for the usual: a double-steakburger with cheese and fries, hold the cheese.

And I think I’ll splurge on a strawberry and vanilla milkshake while I wait to hear who comes out on top in this fight between paper tigers.

John Ketzenberger is president of the Indiana Fiscal Policy Institute, a nonpartisan and nonprofit organization toresearch state budget and tax issues. Email him atjketzenberger@indianafiscal.org. Follow him on Twitter: @JohnKetz.