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EDITORIAL: Steak n Shake needs healing: Biglari deserves turnaround shot

June 30, 2008

Steak n Shake needs healing Biglari deserves turnaround shot

It appears the battle is over at Steak n Shake, where the table is set for new board Chairman Sardar Biglari to overhaul everything from the executive roster to items on the menu in his quest to revive the struggling restaurant company. Longtime stewards of the venerable hamburger chain are no doubt upset that Biglari, a 30-yearold upstart investor from San Antonio, is calling the shots, but he won control fair and square. Now let's see if he can unlock value for shareholders.

There's no question they need some relief. The chain has reported 11 consecutive quarters of declining samestore sales, and its stock has been in the fryer-falling from a high of over $21 in March 2006 to just $6 a share last week.

The company's sad fortunes are a dramatic reversal from the promise it held three years ago. Then-CEO Peter Dunn seemed to have the recipe for making shareholders, customers and employees happy. He added menu items and implemented systems to measure everything from employee retention to customer satisfaction. Sales soared and the stock rose 80 percent in the three years after Dunn became CEO in 2002.

But Dunn's penchant for analysis soon became a negative. Sales slid when the company didn't move quickly enough to keep cost-conscious consumers from defecting to fast food. The stock was hammered and Dunn resigned.

Biglari began preparations for a coup last August, buying stock and calling for tighter cost controls, a streamlined menu and more franchised locations. Since then, he and his San Antonio-based Lion Fund and others in his camp have accumulated 14 percent of Steak n Shake stock.

In a lopsided vote in March, he and an adviser won two seats on the board, displacing Alan Gilman, who at the time was chairman and interim CEO. The board initially resisted installing Biglari as chairman but eventually relented, announcing June 19 that Biglari was in charge.

At IBJ deadline, he was poised to clean house. The board had reversed a policy, adopted in January as a defensive measure, that raised to 80 percent the number of shares required to call a special meeting. With that threshold returned to 25 percent, Biglari was positioned to call a special meeting where old-guard board members would presumably be replaced by others who share his vision.

An overhaul of such proportions rarely happens without someone cast as the loser. We're sorry the regime that once presided over Steak n Shake in good times now finds itself in that role, but the company clearly needs a fresh start, and there's no reason Biglari can't provide it.

It's not as if he's completely divorcing the company from its past. Among his supporters are S. Sue Aramian, a former board member and close associate of late company patriarch E.W. Kelley, and Charles E. Arnett, another former associate of Kelley's. There should be plenty of institutional knowledge to complement Biglari's new strategy.

The important thing is that the dissension should be just about over. Finally, Steak n Shake shareholders have a shot at leadership with a common vision for unlocking the brand's true value.



To comment on this editorial, write to ibjedit@ibj.com.
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