Steak n Shake shields board with bylaw change

February 4, 2008
The Steak n Shake Co.'s board of directors has thrown up a roadblock to a plan by a dissident investor to oust most of its members.

San Antonio-based Lion Fund, whose affiliates own more than 8 percent of the Indianapolis company, wants to get two of its representatives elected to the board at the company's annual meeting, and then to call a special meeting to replace most of the board with its own slate of directors.

But in a regulatory filing late last week, Steak n Shake's board says it has amended company bylaws to require 80-percent shareholder support for calling a special meeting. The previous threshold was 25 percent.

At the same time Steak n Shake reported the bylaw change, it disclosed that it sent a letter to the Lion Fund encouraging it to work with the existing board rather than to fight against it. In the letter, Steak n Shake proposes including two Lion Fund representatives on management's slate of director nominees standing for election at the company's annual meeting in early March. To accommodate the new members, the board would increase from nine to 11 members.

"We believe that your acceptance of our offer will enable us to work together for the future success of the company," said the letter, which was signed by director John Ryan, a former Indiana University president.

The letter strikes a conciliatory tone, noting that "many of the steps you favor are already being implemented."

Officials with Steak n Shake and with Lion Fund could not be reached for comment this morning.

Steak n Shake has been struggling for more than two years and has posted 10 straight quarters of declining same-store sales. The company's stock was trading this morning for about $9 a share. Shares are down 50 percent over the past 12 months.

In a letter to Steak n Shake shareholders last month, Lion Fund chief Sardar Biglari said the existing board is a big part of the problem.

"Unfortunately, the leaders of Steak n Shake have destroyed shareholder value," his letter said. "Plainly, it is time to change the current board - our first priority - to avoid further destruction."

The letter criticized management for allowing expenses to rise and for pursuing expansion of company-owned restaurants, a strategy Biglari contends has been a poor use of capital.

Instead, he wrote, "The future of Steak n Shake lies in franchising," which currently is a small part of the company's business. "Growth through franchising is a high-return and lower-risk endeavor."
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