Biglari shareholder loses bid to stop $75M stock offering

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A shareholder of Steak n Shake parent Biglari Holdings Inc. has lost his bid to stop a stock offering that he argues will give CEO Sardar Biglari too much control in the publicly traded company.

Judge Sarah Evans Barker of the U.S. District Court, Southern District of Indiana rejected shareholder Chad R. Taylor’s request for a preliminary injunction, allowing Biglari Holdings to follow through with its offering to raise $75 million for the company.

Taylor complained in his motion that the offering enables Biglari to unfairly increase his ownership in the company by pricing shares too high. The offering, which began Aug. 27 and closed Sept. 16, entitled shareholders to purchase shares at $265 each for every five “rights” they have, according to the filing.

Further, shares assigned to stockholders who choose not to participate in the offering could only be bought by Biglari, a move meant to further increase his stake in the company, Taylor said in his August motion.

Biglari owns about 19 percent of the company, according to publicly available data.

“The more control S. Biglari assumes over the company the more brazen he is in placing his own personal gain ahead of that of shareholders,” Taylor wrote in his motion for a preliminary injunction.

Evans rejected his motion in a Sept. 12 order, saying Taylor’s argument suffers from two “serious defects.”

His claim that Biglari wants to crowd out smaller shareholders to increase his stock ownership is nothing more than a prediction, she said. And Taylor’s argument contradicts the larger thrust of his complaint—that Biglari already dominates the company.

“If Biglari is already so firmly entrenched that the board moves at his whim, it is difficult to understand—as defendants point out—how the rights offering creates any new or distinct irreparable harm,” Barker wrote.

All five board members have professional ties to Biglari that extend outside their service on the board, including one who was a former professor of his, according to Taylor’s complaint.

Taylor’s motion for a preliminary injunction is part of a federal lawsuit he filed against Biglari and board directors in June in which he accuses them of gross mismanagement and breach of fiduciary duty, as well as other charges.

The suit says they breached their fiduciary duty by allowing Biglari to engage in “self-serving transactions” by approving “inflated” compensation packages.

One of the transactions involves a licensing agreement that grants Biglari Holdings an exclusive license to use the name and mark “Biglari.” The license is royalty-free unless Biglari is terminated without cause or resigns involuntary. Then, Biglari is entitled to receive royalties from Biglari Holdings equal to 2.5 percent of the company’s annual revenue for a period no less than five years, according to the suit.

Also, Biglari’s total compensation package rose from $4.9 million in 2011 to $10.9 million last year, the complaint said.

Biglari became CEO of Indianapolis-based Steak n Shake in 2008, barely a year after he began buying shares of the burger chain.

Steak n Shake is operated by San Antonio-based Biglari Holdings. Its shares were down $2.13 Friday morning, to $425.12 each.


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