Biglari was persistent in pressing Western Sizzlin deal

Back to TopCommentsE-mailPrintBookmark and Share

A newly filed document shows Indianapolis-based Steak n Shake Co.’s purchase of Western Sizzlin Corp. was the idea of Sardar Biglari, who leads both companies, and that Biglari played a key role in shaping the $39 million deal.

The purchase of the Roanoke, Va.-based company has raised eyebrows because of the potential for conflicts of interest stemming from big ownership stakes held in both firms by Biglari investment groups. When the deal was announced in August, at least one analyst suggested it involved self-dealing, and some class-action attorneys began scouting for clients for a possible lawsuit, though none apparently has been filed.

The document, filed with the Securities and Exchange Commission in preparation for the Western Sizzlin shareholder vote on the purchase, says that Biglari proposed the deal at Steak n Shake shareholder meetings on Jan. 8 and Jan. 14.

In response, the boards of both companies formed special committees to consider the deal that excluded Biglari and business partner Phil Cooley. After discussions, Biglari “advised the Steak n Shake board that further consideration should be deferred,” according to the filing. The filing does not explain why, and Biglari did not return a call from IBJ.

Biglari revived the discussion in early May, triggering formation of a special Steak n Shake committee of independent directors comprised of John Ryan, a former Indiana University president; Ruth Person, chancellor and professor of management at the University of Michigan-Flint; and William Regan, a private investor who formerly was chief financial officer of the California Independent System Operator Corp.

Biglari that month provided Regan, the committee chairman, with a “preliminary assessment” of the deal’s value. He also told Regan “he desired that the special committee should remain open to transaction structures” beyond the common practice of paying for a purchase by issuing stock.

The filing shows Regan took steps to try to mitigate conflicts. For example, he didn’t disclose to Biglari and Cooley that Steak n Shake’s financial adviser had provided a preliminary value for Western Sizzlin of between $12 and $13.50 a share. Instead, he reported to the full board that the special committee would be comfortable with an offer from $12 to $13 a share.

The document suggests the special committee initially was reluctant to pursue the unusual structure of the deal, which called for Steak n Shake to pay the bulk of the purchase by issuing bonds to Western Sizzlin shareholders.

Final terms call for Steak n Shake to issue $23 million in bonds, paying a steep 14 percent interest for five years. The rest of the deal’s $39 million value comes from Western’s transferring directly to its shareholders 1.3 million Steak n Shake shares it already owned. That transfer occurred earlier this month.

The decision to issue bonds, the approach championed by Biglari, will generate a steady stream of interest income for him and his investment group. The filing says Biglari justified that approach on the grounds that Steak n Shake shares were undervalued and thus not an ideal currency to use for the purchase.

According to the filing, the boards of both companies approved the deal in part because they concluded the combined firm would save on overhead costs. Steak n Shake’s board also noted that it would boost the company’s scale in the restaurant industry and was consistent with Biglari’s strategy of turning Steak n Shake into a holding company for various businesses. Steak n Shake is by far the larger company, with 485 restaurants, most of them company owned. Western Sizzlin has 101 franchised steakhouse restaurants.

In an August report, Michael Gallo, an analyst with CL King, looked askance at the deal, in part because Steak n Shake’s turnaround is still young.

“At first glance, there seems to us to be some self-dealing regarding the transaction,” he wrote. “Given the apparent progress toward stabilizing [Steak n Shake] over the last couple of quarters, this transaction makes no sense to us.”

Western Sizzlin hasn’t set the date for its shareholder meeting. Based on the current price of Steak n Shake shares, Western Sizzlin shareholders are to receive a total of $13.65—$8.07 in bonds and $5.58 in Steak n Shake stock distributed by Western.

The deal was worth about $13.25 a share on the day it was announced, but the value has grown because Steak n Shake’s share price has increased. Western Sizzlin shares were trading at $12.75 the day before the announcement.



Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. If I were a developer I would be looking at the Fountain Square and Fletcher Place neighborhoods instead of Broad Ripple. I would avoid the dysfunctional BRVA with all of their headaches. It's like deciding between a Blackberry or an iPhone 5s smartphone. BR is greatly in need of updates. It has become stale and outdated. Whereas Fountain Square, Fletcher Place and Mass Ave have become the "new" Broad Ripples. Every time I see people on the strip in BR on the weekend I want to ask them, "How is it you are not familiar with Fountain Square or Mass Ave? You have choices and you choose BR?" Long vacant storefronts like the old Scholar's Inn Bake House and ZA, both on prominent corners, hurt the village's image. Many business on the strip could use updated facades. Cigarette butt covered sidewalks and graffiti covered walls don't help either. The whole strip just looks like it needs to be power washed. I know there is more to the BRV than the 700-1100 blocks of Broad Ripple Ave, but that is what people see when they think of BR. It will always be a nice place live, but is quickly becoming a not-so-nice place to visit.

  2. I sure hope so and would gladly join a law suit against them. They flat out rob people and their little punk scam artist telephone losers actually enjoy it. I would love to run into one of them some day!!

  3. Biggest scam ever!! Took 307 out of my bank ac count. Never received a single call! They prey on new small business and flat out rob them! Do not sign up with these thieves. I filed a complaint with the ftc. I suggest doing the same ic they robbed you too.

  4. Woohoo! We're #200!!! Absolutely disgusting. Bring on the congestion. Indianapolis NEEDS it.

  5. So Westfield invested about $30M in developing Grand Park and attendance to date is good enough that local hotel can't meet the demand. Carmel invested $180M in the Palladium - which generates zero hotel demand for its casino acts. Which Mayor made the better decision?