Steak n Shake parent wins court victory amid proxy challenge

March 20, 2015

Biglari Holdings Inc. has won a major legal victory as a separate fight with a dissident shareholder turns personal.

A lawsuit brought by shareholders of the Steak n Shake parent accusing CEO Sardar Biglari and directors of breaching their fiduciary duties has been dismissed by a federal judge in Indiana.

The complaint, filed in June 2013, challenged Biglari’s controversial pay package and licensing agreement in which the company can use Biglari’s name and likeness but must pay him a percentage of revenues if he’s ousted.

“Not only is the licensing agreement an egregious golden parachute … but it is also a surreptitious entrenchment device designed to further strengthen Biglari’s control over the company,” shareholders argued in the suit.

Judge Sarah Evans Barker of the U.S. District Court, Southern District of Indiana in Indianapolis dismissed the complaint on Wednesday.

In her ruling, Barker wrote that just because Biglari controls nearly 17 percent of the company’s stock doesn’t mean directors are subservient to him and rubber stamp his compensation package and other decisions.

“Without pointing to evidence indicating that the amount potentially provided to Biglari under the agreement is ‘unjust, oppressive or fraudulent,’ it is not appropriate for us to question the board’s implicit statement of the value that Biglari’s services as CEO provide to the company," she wrote.

Biglari seized control of locally based Steak n Shake in 2008 and in 2013 licensed his name to the company for 20 years.

Biglari won’t receive royalties if he remains atop the chain and its parent, which he rechristened Biglari Holdings Inc. in 2010. But if Biglari were forced out for anything but malfeasance, or if the San Antonio-based parent company were sold, he’d receive 2.5 percent of sales for five years—a sum that could surpass $100 million.

Attorneys representing shareholders in 2013 filed two suits, which were consolidated in federal court in Indianapolis.

The lawsuit also accused Biglari and directors of gross mismanagement and abuse of control.

The dismissal of the suit comes as a Minnesota investment firm Groveland Capital is attempting to oust Biglari and the rest of the board. Groveland offered to retreat if Biglari Holdings agreed to sweeping corporate governance changes, but the company’s board rebuffed that overture.

The back and forth between the two is starting to get personal.

On Thursday, Groveland issued a statement ahead of Biglari Holdings’ annual meeting April 9 responding to a letter the company sent its shareholders on March 12, in which it accused Groveland CEO Nick Swenson of associating with a criminal and called his slate of director candidates inexperienced.

“Swenson has a dreadful track record of stewardship,” the Biglari letter said.

Groveland, in turn, accused Biglari Holdings of attempting to distract its shareholders from the real issues the company is facing.

"We are not surprised by such tactics, but we are still disappointed,” Groveland wrote. “We believe Mr. Biglari understands that shareholders of Biglari Holdings are not happy with his outsized compensation, his use of Company assets to buy shares of the Company over which he has sole voting control, and poor corporate governance that, among other things, allows continued conflicts of interest that benefit Mr. Biglari.”

Meantime, on March 13, Steak n Shake reported a same-store sales increase of 4.8 percent for the quarter ended Dec. 31.


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