Denny's proxy fight follows Steak n Shake template

Back to TopCommentsE-mailPrintBookmark and Share

A group of dissident investors have launched a proxy fight at the Denny's restaurant chain using the template that led to a successful takeover of Steak n Shake.

The group, which includes former Steak n Shake investor and consultant Jonathan Dash, has formed The Committee to Enhance Denny's, set up the Website enhancedennys.com, and is asking shareholders to approve its slate of three members on the eight-member Denny's board.

The existing management of Spartanburg, S.C.-based Denny's Corp., which operates the 1,551-store chain known for its Grand Slam breakfasts, is pointing to the Steak n Shake example as part of its strategy to block Dash and his group from winning board seats.

Sardar Biglari, now the chairman of Steak n Shake parent Biglari Holdings Inc., in 2007 formed a Committee to Enhance Steak n Shake, set up enhancesteaknshake.com and launched his own proxy fight.

Once Biglari gained a foothold, he quickly rose to CEO, cut costs and added new promotions. He also cut capital expenditures from an average of $55 million per year to just $5.8 million last year, a move that helped Steak n Shake snap a 14-quarter streak of declining same-store sales.

In the meantime, Biglari also converted Steak n Shake into a holding company for a range of investments, including those beyond the restaurant sphere, over which Biglari has complete authority. And he changed the parent company's name to Biglari Holdings.

The board of directors of Denny's, in an April 27 letter urging a vote for its own slate of directors at the Denny's annual meeting on May 19, said the dissident group has "very questionable motives."

"Both the past actions of its members and the manner in which the group has behaved in this process make clear that it has a self-interested agenda, including potentially seeking to gain control of the company without paying a premium to you and the rest of the company's stockholders," the company noted.

The Denny's investors, who already own about 6 percent of the company's outstanding shares, have blasted the chain's descent to second place in sales in its category, behind IHOP, along with poor historic stock performance, "inappropriately high" administrative expenses and low stock ownership among board members. They also are critical of the chain's $150 million in expenditures on repairs, maintenance and new restaurants since 2006.

The group's board candiates—which include Dash, Oak Street Capital Management Founder David Makula and Macquarie Futures USA director Patrick Arbor—say they want to cut costs by $15 million.

Dash, reached at his office in Beverly Hills, referred a reporter to publicly available filings in the proxy battle, where he has described Denny's as an "iconic American brand" that needs a major revamp to survive, and that his group wants to bring a "fresh perspective" to the board.

Sound familiar?

Biglari, who owned about the same percentage of Steak n Shake's shares when he launched his proxy fight, also presented himself as a shareholder-friendly alternative to the chain's management. He bristled at the chain's hefty capital expenditures on new restaurants and renovations to old ones, saying the returns failed to justify the investments.

And he described Steak n Shake as an "iconic American brand" in need of a breath of fresh air.

The Denny's proxy battle sounds like a classic copycat attempt—one with a slim chance of mirroring the turnaround taking hold at Steak n Shake, said Rich Hummel, director of research at Columbus-based Kirr Marbach & Co.

He said takeover attempts in which investors want to collect and redirect a business’s cash flows to other investments are pretty rare. It’s an adapted version of Warren Buffett’s investing method with the former textile manufacturer Berkshire Hathaway—but in Buffett’s case he didn’t start taking cash flows out until it was clear the business was dying.

“The idea is to find stocks with a cheap price relative to cash flow, run them till they die, and take those dollars out of the business,” Hummel said. “Maybe I’m not as bright as these guys, but it seems like there are better ways to make a dollar.”

Denny's isn't exactly thriving but it also isn't looking like a company about to go out of business.

In its most recent letter to shareholders, the board of Denny's cites the example of Steak n Shake to argue the dissident group is more interested in taking over Denny's and diverting its cash flows than trying to improve the underlying business.

The company pointed out that after Biglari took over, Steak n Shake "proceeded to adopt a range of anti-stockholder governance practices and increased the salary of Mr. Biglari more than threefold, from $280,000 to $900,000."

Members of the Denny's group said in proxy materials that they began buying shares in August 2009, a few months after key members met for the first time, in Indianapolis at the annual meeting of what was then Steak n Shake Co.


  • I know these guys
    I worked at Steak n Shake corporate when Biglari jockeyed his way to chairman of the board and then on to CEO. Dash was there too along with another activist investor. I met with him a number of times.
    What I can say about this, is that Biglari has ego written all over him. The guy is just over 30 and Dash is in the same age category. They think they know it all and that somehow financial wizardry is the answer. In reality, they are not leaders and I believe they will not be able to produce sustainable returns in the long run.
  • Fight them Off, Nelson!
    I ate at Denny's when I was a kid. When I had twin sons, we ate at Denny's as a family. In my career I had the honor of working for Nelson Marchioli as a Denny's Restaurant G.M. for over three years. I took pride in my staff and I had the utmost confidence in the company's Spartenburg leadership. The stores resonate with happy memories, and shine with the effort that is invested in them by all staff members. I do not work for Denny's anymore, but I often wish I did. Please, Nelson, fight this gang off! I always want to look back with pride at my time there- and not be filled with the regret that 'This too, has passed.' David Lang, Monterey California

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. I am not by any means judging whether this is a good or bad project. It's pretty simple, the developers are not showing a hardship or need for this economic incentive. It is a vacant field, the easiest for development, and the developer already has the money to invest $26 million for construction. If they can afford that, they can afford to pay property taxes just like the rest of the residents do. As well, an average of $15/hour is an absolute joke in terms of economic development. Get in high paying jobs and maybe there's a different story. But that's the problem with this ask, it is speculative and users are just not known.

  2. Shouldn't this be a museum

  3. I don't have a problem with higher taxes, since it is obvious that our city is not adequately funded. And Ballard doesn't want to admit it, but he has increased taxes indirectly by 1) selling assets and spending the money, 2) letting now private entities increase user fees which were previously capped, 3) by spending reserves, and 4) by heavy dependence on TIFs. At the end, these are all indirect tax increases since someone will eventually have to pay for them. It's mathematics. You put property tax caps ("tax cut"), but you don't cut expenditures (justifiably so), so you increase taxes indirectly.

  4. Marijuana is the safest natural drug grown. Addiction is never physical. Marijuana health benefits are far more reaching then synthesized drugs. Abbott, Lilly, and the thousands of others create poisons and label them as medication. There is no current manufactured drug on the market that does not pose immediate and long term threat to the human anatomy. Certainly the potency of marijuana has increased by hybrids and growing techniques. However, Alcohol has been proven to destroy more families, relationships, cause more deaths and injuries in addition to the damage done to the body. Many confrontations such as domestic violence and other crimes can be attributed to alcohol. The criminal activities and injustices that surround marijuana exists because it is illegal in much of the world. If legalized throughout the world you would see a dramatic decrease in such activities and a savings to many countries for legal prosecutions, incarceration etc in regards to marijuana. It indeed can create wealth for the government by collecting taxes, creating jobs, etc.... I personally do not partake. I do hope it is legalized throughout the world.

  5. Build the resevoir. If built this will provide jobs and a reason to visit Anderson. The city needs to do something to differentiate itself from other cities in the area. Kudos to people with vision that are backing this project.