Reporter's Notebook
Biglari Holdings defends its CEO

Biglari Holdings defends its CEO

Jonathan Maze

Biglari Holdings defended its CEO and its track record and questioned the capabilities of investors targeting the board for a complete takeover in a letter sent to shareholders this week.

The letter is the first public response from the company since Groveland Capital, a Minneapolis-based hedge fund, nominated a full slate to Biglari Holdings’ six-person board. Groveland has since called for the ouster of the chain’s CEO and namesake, Sardar Biglari.

In the letter, Biglari Holdings argues that the company’s stock has outperformed the S&P 500 by 175 basis points between August 5, 2008, the day Biglari became CEO, and March 6 of this year.

Biglari won seats on the board at Steak N Shake in 2008 and was that year named the company’s chairman and CEO. He eventually changed the company’s name to Biglari Holdings.

“Over the past six years, we have transformed your company from a nearly insolvent, money-losing restaurant chain on the brink of bankruptcy to form the base of Biglari Holdings, a holding company with a diverse array of valuable businesses,” the company wrote.

The San Antonio-based Biglari Holdings also argued that Groveland is spending only $1 million to acquire control of a company with a market value of over $1 billion. Groveland owns 0.17 percent of Biglari Holdings stock and therefore has “no skin in the game.” Biglari also complained that the group has “no articulated plan for the company and no individual with any relevant operating experience in its list of nominees.”

Biglari Holdings also questioned the history of Nick Swenson, Groveland’s CEO, charging him with “broken promises” to shareholders of the company where Swenson is chairman and CEO, Air T.

Sardar Biglari

Biglari also says that Swenson “partnered” with an investor, Tom Petters, in the 2006 acquisition of Sun Country Airlines. Petters is serving a 50-year sentence after being convicted of orchestrating a $3.7 billion Ponzi scheme. “Is Mr. Swenson someone you can trust to protect your investment?” the letter states.

Swenson was a portfolio manager at a hedge fund called Whitebox Advisors before he founded Groveland in 2009. Whitebox, which has not been accused of wrongdoing, partnered with Petters on the Sun Country deal.

Swenson said he is preparing a response to the letter and couldn’t comment for this piece.

Biglari Holdings in its letter did not mention a controversial license agreement between the company and Biglari, that would pay him 2.5 percent of company sales in the case of a change in control — which Groveland estimates would end up paying Biglari $100 million over five years in a “super golden parachute.”

Nor does the letter address Groveland’s contention that Biglari received nearly $76 million in salary and bonuses since the 2009 fiscal year, including a $30.9 million bonus for the 2014 fiscal year — compensation Groveland estimates to be equal to 37.7 percent of Biglari Holdings’ operating income over that period.

But Biglari Holdings did indicate that it appointed a lead independent director (William Johnson), hired a compensation-consulting firm to review executive compensation, improved compensation disclosure and implemented a clawback policy related to Biglari’s incentive. The policy would enable the company to recover incentive payments should Biglari Holdings have to restate finances.

Biglari Holdings also notes that Steak n Shake’s cumulative same-store sales has increased by 27.3 percent over the past 23 quarters and that traffic has increased 37.8 percent, “reversing a decade-long decline in customer traffic under prior management.”

And the company says that its investments have produced annualized returns of 32.8 percent from August 2009, compared with annualized returns of 17 percent for the S&P. All told, Biglari Holdings says it has earned $490 million in investment gains between 2009 and December 2014.

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