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UPDATE: Steak n Shake turning away from core business

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The Steak n Shake Co. is taking a dramatic turn away from its core business with a bid to purchase a Michigan insurer in a deal valued at almost $37 million.

The Indianapolis-based burger chain, now operated as a holding company with activist-investor-turned-CEO Sardar Biglari at the helm, has offered to acquire the outstanding shares of Fremont Michigan Insuracorp Inc. for $24.50 per share in cash and stock, an 11.3 percent premium to Monday's closing price.

It's the second major deal this year for Steak n Shake. The company acquired Virginia-based Western Sizzlin Corp.—another restaurant chain where Biglari is chairman and CEO—for $39 million in a deal finalized this fall.

While Wall Street applauded the latest deal, sending shares up more than 17 percent to $345 in morning trading, local investment advisers say the company is wandering away from its specialty into uncharted territory.

"It's hard to see how burgers and insurance policies go together,"  said George Farra, co-founder and principal of Woodley Farra Manion Portfolio Management. "I'm very concerned that one of the few local publicly traded companies—its focus is being diverted to build a financial services empire without much of a track record behind it."

Steak n Shake disclosed that it had purchased a roughly 10-percent stake in Fremont in October, shortly after CEO Sardar Biglari said he intended to transform Steak n Shake into a holding company to pursue purchases “either related or unrelated to its ongoing business activities.”

The company has not revealed its plans for Fremont, but observers say Biglari wants to use the firm's $60 million investment portfolio to fund more acquisitions, following in the footsteps of his investing hero, Warren Buffett.

Buffett's Berkshire Hathaway acquired its first insurer in the 1960s and now funds billions of dollars in investments through the portfolios of its insurance companies.

Biglari, a 32-year-old hedge fund manager, last week initiated a 1-for-20 reverse stock split that has elevated Steak n Shake shares above $300 apiece, the highest among listed restaurant companies. The move was another nod to Buffett; Berkshire A shares trade for about $99,000.

The moves come at the beginning of a turnaround for Steak n Shake, which this year snapped a 14-quarter streak of declining same-store sales.

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  1. With Pence running the ship good luck with a new government building on the site. He does everything on the cheap except unnecessary roads line a new beltway( like we need that). Things like state of the art office buildings and light rail will never be seen as an asset to these types. They don't get that these are the things that help a city prosper.

  2. Does the $100,000,000,000 include salaries for members of Congress?

  3. "But that doesn't change how the piece plays to most of the people who will see it." If it stands out so little during the day as you seem to suggest maybe most of the people who actually see it will be those present when it is dark enough to experience its full effects.

  4. That's the mentality of most retail marketers. In this case Leo was asked to build the brand. HHG then had a bad sales quarter and rather than stay the course, now want to go back to the schlock that Zimmerman provides (at a considerable cut in price.) And while HHG salesmen are, by far, the pushiest salesmen I have ever experienced, I believe they are NOT paid on commission. But that doesn't mean they aren't trained to be aggressive.

  5. The reason HHG's sales team hits you from the moment you walk through the door is the same reason car salesmen do the same thing: Commission. HHG's folks are paid by commission they and need to hit sales targets or get cut, while BB does not. The sales figures are aggressive, so turnover rate is high. Electronics are the largest commission earners along with non-needed warranties, service plans etc, known in the industry as 'cheese'. The wholesale base price is listed on the cryptic price tag in the string of numbers near the bar code. Know how to decipher it and you get things at cost, with little to no commission to the sales persons. Whether or not this is fair, is more of a moral question than a financial one.

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