Public Companies and Deals and Executives and Share acquisition and Sardar Biglari

Biglari Holdings targets auto-parts chain

May 3, 2010

The parent company of Steak n Shake restaurants is angling to acquire a stake in the Advance Auto Parts chain worth tens of millions of dollars.

Biglari Holdings Inc. has made an offer to swap its stock for up to 1.4 million shares in the Roanoke, Va.-based national retail chain. The stake would be worth almost $65 million if shareholders in Advance Auto Parts take up Biglari on its offer.

The offer was worth $46.12 per share in Advance stock, a small premium to the Friday closing price of $45.10. Biglari shares, meanwhile, closed Friday at $391.25.

But the value of the offer fell well below the going price for Advance shares Monday morning as Biglari Holdings tumbled more than 8 percent.

The selloff was fueled by a proposed incentive package, also unveiled Friday, that would pay Biglari 25 percent of the company’s annual book-value growth above 5 percent—a package critics are likely to find extremely generous, particularly for a man who has railed against excessive CEO pay.

The exchange ratio for the offer is one share of Advance for 0.1179 shares of Biglari Holdings, meaning the value of the deal will fluctuate each day until the offer expires on May 27.

The move suggests Biglari Holdings CEO Sardar Biglari believes shares in his company are overvalued compared to those of Advance Auto Parts, which operates more than 3,200 stores.

Biglari took over Indianapolis-based Steak n Shake Co. in a 2007 proxy fight, helped return its restaurants to profitability, then transformed it into a holding company for a diverse range of investments. The renamed company, now based in San Antonio, has moved aggressively to invest or take over other firms, including a small Michigan insurer.

The offer for Advance shares is the Biglari's first foray into the retail space. If shareholders accept the offer, Bigarli Holdings would own just 1.5 percent of the outstanding shares of Advance.

The company said it will exchange as many shares as are offered, up to the maximum number of 1.4 million.

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