Advisory firm: Current Biglari board must go

April 8, 2015

A Minnesota-based investment firm that wants to oust Sardar Biglari from control of the company that owns Steak n Shake has won full-throated support from an independent advisory firm at the 11th hour.

Egan-Jones Proxy Services is recommending that shareholders of Biglari Holdings Inc. elect all six nominees of Minnesota-based Groveland Capital LLC at the company’s annual meeting Thursday afternoon in New York City.

“In our opinion, the current board and management has failed to uphold practices of good governance and conduct itself in a way … intended to be beneficial to all shareholders,” Egan-Jones wrote. “It is our belief that as long as the current board and management remain in control, that undesirable course will continue.”

Votes are flowing in this week, and at least one major investor appears to be sliding into Groveland’s corner. Billionaire investor Mario Gabelli, whose affiliates own nearly 10 percent of the shares, told IBJ Tuesday that his representatives might side with Groveland’s nominees when they cast their votes at the meeting.

Other investors could be swayed by the Egan-Jones report. Egan-Jones joins advisory firms Institutional Shareholder Services and Glass Lewis & Co. in expressing deep concerns with Biglari Holdings’ governance practices—including an unusual 2013 deal under which Sardar Biglari licensed his name to the company. Terminating that pact could trigger more than $100 million in payments to Biglari.

However, ISS and Glass Lewis concluded the Groveland slate, led by Groveland CEO Nick Swenson, was thin on experience. ISS did not recommend any Groveland nominees and said it feared a full overhaul of the board could “make a bad situation worse.” Glass Lewis supported two Groveland nominees, those with the most-extensive restaurant experience.

Egan-Jones wrote, “While we do not believe the dissident directors nominees to be the ‘perfect choice’ by any means, we believe the dissident nominees to be the best choice available to shareholders at this time to protect their investment in the company.” The advisory firm said the status quo merely would give current board members more time to entrench themselves, making their ouster in the future more difficult.

In addition to Indianapolis-based Steak n Shake, Texas-based Biglari Holdings also owns the Maxim’s men’s magazine, Western Sizzlin, an insurance company and a big stake in Cracker Barrel.

Neither Biglari Holdings nor Groveland has revealed how its nominees have been faring in votes shareholders already have cast. Groveland would need a lot of help from other shareholders to prevail because it owns less than 1 percent of Biglari Holdings’ shares.

Groveland's slate of directors includes Swenson, 46, as well as Ryan Buckley, a director at the investment banking firm Livingstone Partners, attorney Stephen Lombardo III, and Jim Stryker, a 37-year restaurant industry veteran who formerly was chief financial officer of the Tennessee-based parent of the Perkins and Marie Callender’s chains.

Groveland has been highly critical of Biglari's stewardship of the company. It argues removal of the six incumbents is justified based on the stock’s underperformance, the company’s declining profitability, strained franchisee relations, poor corporate governance and outsized compensation received by Biglari. His 2014 compensation, including fees from managing investment funds, topped $35 million.

In an interview with IBJ, billionaire investor Mario Gabelli praised the 37-year-old Biglari for improving the performance of Steak n Shake after taking the helm in 2008. He also noted Biglari’s investment in Cracker Barrel has yielded big returns.

On the other hand, Gabelli was skeptical of last year’s purchase of the money-losing magazine Maxim, and he used an expletive to describe the controversial Sardar Biglari licensing agreement.

But he said his big issue is the unusual corporate maneuvers that give Sardar Biglari the right to vote 19 percent of Biglari Holdings’ shares despite owning just 1.5 percent of the stock.

Gabelli representatives in February and March sent letters to Sardar Biglari asking whether he intended to vote more than the 1.5 percent, but the letters got no response. In another letter Tuesday, a Gabelli representative said the firm will support the Groveland slate unless Sardar Biglari agrees to abstain from voting the shares he doesn’t actually own.

Gabelli told IBJ: “The good and bad are kind of equal,” referring to Biglari’s leadership of the company. “But if he stuffs the ballot box, that is not appropriate.”


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