Steak n Shake decides against sale

February 22, 2008
Offers to buy Steak n Shake were too low, the Indianapolis-based restaurant chain said late yesterday, and as a result the company will focus on a turnaround plan of improving existing stores.

Steak n Shake didn't disclose the number of offers or their values.

A sale was among several plans considered by a special committee of independent directors formed in August, and aided by the Wall Street firm Merrill Lynch.

The committee was formed after CEO Peter Dunn resigned following eight straight quarters of declining same-store sales.

Those sales have continued to drop.

However, Steak n Shake said yesterday that it thought its best chances at a turnaround were to improve operations and "unit economics."

Indeed, "disappointing operating performance" suppressed values of offers the company received, the statement said. The company said other reasons for the disappointing offers included:

-"unfavorable trends" in the casual dining sector. Last month, the company said consumers were spending less at restaurants, and that the remaining dollars allocated to dining out were trending toward fast food. The shift was driven by a deteriorating economy, the company said.

-volatility in financial markets.

"We remain confident in the long-term future of Steak n Shake as we focus our attention on continuing our turnaround plan and hiring a permanent chief executive officer," Alan Gilman, interim CEO, said in the statement.

In particular, results of dropping prices on its Steakburgers have been encouraging, Gilman said.

Late last month, Steak n Shake executives said the company will discount some items, revamp its breakfast menu and ramp up advertising to reverse the persistent decline in same-store sales.

To encourage more drive-through business, the company planned to introduce several breakfast sandwiches and promote its new partnership with Seattle's Best coffee.

Also late yesterday, a shareholder group that has been trying to gain two Steak n Shake board seats sent a letter to shareholders reiterating its call for support.

Early this month, San Antonio-based Lion Fund filed papers with the Securities and Exchange Commission seeking the election of the fund's Sardar Biglari and Philip Cooley at Steak n Shake's annual meeting on March 7.

Steak n Shake is "handicapped by a lack of leadership, lack of execution, and lack of strategic direction from headquarters," Biglari said in the letter.

Shares in Steak n Shake fell 1.6 percent this morning to trade near $8.15.

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