Banking & Finance

BEHIND THE NEWS: Steak n Shake roadblock sends dissident on detour

June 9, 2008

Since he began scooping up shares of The Steak n Shake Co. last year, dissident investor Sardar Biglari has been forthright about his intentions. Perhaps to a fault.

The Texan's investor group in January laid out its strategy in a 10-page letter. First, it would push to elect two of its representatives to the nine-member board at the annual meeting. Then, it would ask shareholders to call a special meeting, where he hoped they would replace the majority of the board.

Biglari, 30, succeeded in getting himself and a colleague elected to the board in March. But by then the board already had thrown up a huge roadblock to his grander plan-overhauling the board-by changing its bylaws. The change boosted the shareholder support needed for a special meeting from 25 percent to an almostimpossible-to-attain 80 percent.

Perhaps the board would have changed its bylaws, anyway, even if Biglari had not telegraphed his strategy. As veteran Indianapolis investment banker John Reed notes, boards under assault routinely enlist securities attorneys "to apprise them of their vulnerabilities and their options."

Regardless, the board's defensive move goes a long way toward explaining why-a year after dissident investors began swarming-the future of the Indianapolis chain remains mired in uncertainty.

Steak n Shake has been searching for a CEO since August, when Peter Dunn stepped down. The company ultimately might land a top-notch candidate, but the internal dissension surely has scared off some strong contenders.

The status quo has been bruising for investors, who've seen Steak n Shake's stock price fall 66 percent since last summer, driven down by weak performance. The company has reported 11 straight quarters of falling same-store sales.

After winning election to the board, Biglari had hoped fellow directors would fall into line and name him chairman. Instead, they went with Wayne Kelley, a director the past five years.

Biglari isn't acquiescing. His group continues to grow, and now holds more than 13 percent of the company's stock.

No doubt, existing management is feeling the pressure, but Biglari is a long way from calling the shots. Barring a breakthrough, he may have to press his case at the next annual meeting, where he could complete his overhaul of the board.

But that meeting won't be until late 2008 or early 2009. Meanwhile, the company's struggles show no sign of ebbing.

During Steak n Shake's quarterly conference call last month, Sue Aramian, a retired vice chairwoman of the company who remains a shareholder, blasted insiders for a "vacuum of leadership."

"I ... am saddened that after many years of continued growth and success, a company which has enjoyed iconic stature in the Midwest is now known as a sick company," she said on the call.

Aprimo raises $15M

Aprimo Inc. pulled its $50 million initial public offering in April, citing weak market conditions. But the setback hasn't left the Indianapolis-based maker of marketing software starved for cash.

A new securities filing shows the company recently raised $15 million in a private offering. Most of the money came from existing investors, Chief Financial Officer Michael Nelson told IBJ.

Nelson declined to comment on whether Aprimo eventually would pursue an IPO. It's far from alone in backtracking this year on plans to go public. The weak stock market has contributed to the cancellation of 49 U.S. IPOs in 2008, nearly twice the number at this point last year.

Both Aprimo and Indianapolis-based ExactTarget Inc. announced plans last fall to go public. ExactTarget, whose software helps clients create and deliver permission-based e-mails, has continued to lay the groundwork for its $86 million deal. It filed updated paperwork for the offering with the Securities and Exchange Commission on May 28.

KeyCorp gets clubbed

Cleveland-based National City Corp. isn't the only heavyweight in the central Indiana banking market taking a drubbing on bad loans.

Shares of KeyCorp, also headquartered in Cleveland, tumbled 10 percent in a single day late last month after the company predicted that it would write off 1 percent to 1.3 percent of loans this year. Previously, Key had expected charge-offs to amount to between 0.65 percent and 0.9 percent.

Key shares now trade for $19, down by half since mid-2007. National City has fared even worse. Its shares have fallen more than 80 percent in the past year.

An exaggerated death

Ten years ago, Time magazine ran a cover story headlined, "Should you kiss your mall goodbye?" It wasn't one of David Simon's favorite journalistic efforts.

And he's getting the last laugh. The article suggested that Internet shopping would make malls obsolete. It's a prediction that's proved wildly off base, as Simon, CEO of Simon Property Group Inc., noted with some satisfaction in an interview on SmartMoney.comthis month.

"The mall's been bad-mouthed for almost two decades now. Yet if you look at not just us but other prominent companies in our space, we've all been able to grow our cash flow," he said. "At the end of the day, retailers come and go, but the mall continues to thrive and will continue to evolve."
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