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Steak n Shake plans 20-1 reverse stock split

December 15, 2009

The Steak n Shake Co., in an unusual gambit, plans to initiate a reverse stock split that would reduce its number of shares outstanding from almost 29 million to just 1.4 million and boost its per-share price from roughly $12 to $240.

The Indianapolis-based restaurant chain announced the 20-for-1 reverse split Monday afternoon in a shareholder letter from Sardar Biglari, the 32-year-old CEO who models his moves after the legendary investor Warren Buffett.

Biglari has transformed Steak n Shake into a holding company, ala Buffett's Berkshire Hathaway, and has announced plans to use the chain's free cash flow to make acquisitions as he pleases. Steak n Shake agreed in August to acquire the steak chain Western Sizzlin, another Biglari holding, and has acquired a roughly 10-percent stake in a small insurer.

Now, Biglari hopes to scare off short-term investors by raising the share price of Steak n Shake. (Buffett has famously refused to split shares in his Berkshire Hathaway A stock, which now trades for $99,400 a share, although the B shares are available for 1/30th of the cost.)

Reverse splits traditionally are used by struggling companies, often with share prices under $1, so they can maintain stock listings and stay within the investment range allowed by mutual funds.

Ironically, Biglari writes in his annual letter that the management team's focus is on "the value of the company, not on the stock price." So why is Steak n Shake moving to artificially raise its stock price?

"We are seeking to assemble and align ourselves with long-term investors whose purpose is to prosper in concert with the company," Biglari wrote. "The change, we hope, will dissuade speculators from participating in our stock."

The letter accompanied the chain's annual and quarterly earnings reports. The company reported a quarterly profit of $3.4 million, or 12 cents per diluted share, for the period ended Sept. 30. That compares to a loss of $9.2 million, or 32 cents per diluted share, during the same period last year. Fourth-quarter revenue rose to $158.6 million from $138.9 million a year ago.

The company said quarterly customer traffic rose 20 percent and same-store sales were up 10 percent.

For the year, Steak n Shake earned $6 million on revenue of $627 million, a major improvement over the $23-million loss the company reported for fiscal 2008.

Biglari, who does not hold conference calls with Wall Street analyst or return media phone calls, described the chain's turnaround as "miraculous".

"To engineer our turnaround required drastic changes in strategy, operations and culture," he wrote. "Otherwise, Steak n Shake would have devolved into a footnote in the history of iconic American brands."

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