Steak n Shake’s Biglari adds intrigue by buying stake in insurer

Sardar Biglari has tapped the coffers of The Steak n Shake Co. to invest $3.5 million in a Michigan insurance company—a
move that, at first glance, might seem bizarre. Few things have less in common, after all, than hamburgers and auto insurance.

But investment manager George Farra suspects he sees the endgame.

“I don’t think he wants
to be an insurance guy,” said Farra, a principal with locally based Woodley Farra Manion. “I think he is buying
because it has a large investment portfolio he can use” for acquisitions.

In an Oct. 26 regulatory filing,
Steak n Shake disclosed it had purchased 172,500 shares of tiny Fremont Michigan Insuracorp Inc., giving it a 9.9-percent
stake.

Biglari, a 32-year-old Texas hedge fund manager, revealed earlier this year that he intends to use Steak
n Shake as a holding company that will pursue purchases “either related or unrelated to its ongoing business activities.”

Biglari

In
his first big move, he stuck to restaurants. In August, Steak n Shake announced it was buying Virginia-based
Western Sizzlin Corp.—another firm where Biglari is chairman and CEO—for $39 million.

Fremont Michigan
Insuracorp is similarly sized, with nearly the same stock market value. It’s an undervalued, conservatively
run business, with “a balance sheet that would put a Puritan to sleep,” Harry Long, managing partner of Houston-based
Contrarian Industries, wrote on seekingalpha.com.

Biglari isn’t saying what his intentions are for Michigan
Insuracorp—through an assistant, he declined to comment. But if his goal is to gain control of the insurer, and use
its $60 million investment portfolio to fund purchases, he’d be following in the footsteps of some investment greats,
including Warren Buffett.

Buffett, Berkshire Hathaway’s chairman, acquired his first insurer in the 1960s.
Nowadays, Berkshire funds billions of dollars in investments through the portfolios of its insurance companies.

But for Biglari, the strategy has its risks. Perhaps the biggest: He’ll overextend himself and lose focus on Steak
n Shake at a critical time. The business this spring snapped a 14-quarter streak of declining same-store sales, but still
is early in its turnaround. Putting it on auto-pilot could be disastrous.

Another is that Steak n Shake will
become starved for investment, a fate that has befallen other retail chains—Sears among them—run by hedge fund
operators. Such players sometimes use free cash to buy back stock or make other investments rather than plowing it back into
the business.

For now, Steak n Shake investors like what they see. The company’s shares have doubled this
year, to around $12. Analysts note that the company has almost no debt and owns many of its restaurants—value it can
tap through sale/leasebacks. Steak n Shake also is shifting its focus toward franchising, a less-capital-intensive path toward
growth.

In an October note to clients, the Baltimore investment firm Stansberry & Associates wrote that “this
undervalued business is already flowing with cash.” It urges clients to scoop up shares in Steak n Shake “before
Wall Street discovers its huge hidden upside potential.”

Concrete results for law firm

The $29 million concrete price-fixing settlement announced Oct. 27 with Irving Materials Inc. continues
an impressive run for Indianapolis attorney Irwin Levin, who with a Houston lawyer is serving as plaintiffs’ co-lead
counsel.

The settlement, combined with earlier deals with three other firms, swells settlement proceeds to $53
million. That means purchasers of ready-mixed concrete are going to recover virtually all their losses from the scheme even
after attorneys’ fees are deducted and before claims against the remaining two defendants are resolved, said Levin,
managing partner of Cohen and Malad.

Attorneys are seeking fees equal to one-third of settlements. The Irving
settlement, the largest yet, brings that sum to more than $17 million.

The concrete case isn’t the only
legal battle to unfold favorably for both the law firm and its clients in recent years. Litigation that wrapped up last year
over the collapse of a health insurance trust for Indiana construction workers yielded $24 million in settlements. After $8
million went to the law firm, customers of the trust received $16 million, about 90 percent of what they were owed.

“We’re fighters,” Levin said of the 25-attorney firm.•

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