SARDAR
BIGLARI ISSUES LETTER TO SHAREHOLDERS OF THE STEAK N SHAKE COMPANY
Thursday
March 6, 8:19 am ET
SAN
ANTONIO, Texas, March 6 /PRNewswire-FirstCall/ -- Sardar Biglari, Chairman and
Chief Executive Officer of Western Sizzlin
Corporation (Nasdaq: WEST - News) and The Lion Fund,
L.P., issued the following letter today to the shareholders of The Steak n Shake
Company (NYSE: SNS -
News):
Dear
Fellow Shareholders:
Steak n
Shake's proxy contest is about board leadership: Phil Cooley and I are seeking
to replace Alan Gilman and James Williamson. Shareholders must vote for the
nominees they believe can best guide the board to attain the maximum shareholder
value for all.
The board
was disingenuous to you when in its February 27 letter it insisted that
"[Messrs. Gilman and Williamson] have made substantial contributions to the
Company and shareholder value for many years." The reality is that shareholder
value has been destroyed during the last decade, as the following table
illustrates:
Relative
Shareholder Returns
|
|
|
Total
Shareholder Returns
|
|
|
|
|
|
|
|
|
|
|
|
Steak
n Shake
|
(32.7%)
|
(12.1%)
|
(56.5%)
|
|
S&P
Restaurant Index
|
184.4%
|
222.8%
|
48.4%
|
Note: All
share prices used to calculate Total Shareholder Returns are as
of
February 22, 2008. Source: Research Data Group. To avoid
disagreement
with the
Company on the selection of a comparable peer group, we
deliberately
selected the S&P Restaurant Index because the Company selects
it in its
public filings.
The board
boasts of Messrs. Gilman's and Williamson's lengthy experience in the restaurant
business as reason for their election; yet their decisions have resulted in
shareholders experiencing investment losses. Independent proxy advisory firm
Institutional Shareholder Services (ISS) wrote, "[W]hile the presence of two
former CEOs [Gilman and Williamson] enhances company and industry-specific board
experience, ISS notes that such an experience at SNS has not translated into
favorable shareholder return." Plainly, the board's inflated rhetoric cannot
conceal its dismal record. Nothing said or written can disguise the obvious
truth that the board has failed to make money for Steak n Shake's
shareholders.
Furthermore,
the board continues to state incorrectly that Phil Cooley and I do not have
experience in the restaurant business. The reality is that we have we been
involved in restaurant businesses -- Western Sizzlin Corp. and Friendly Ice
Cream Corp. -- and, more importantly, these companies have generated substantial
shareholder value since the inception of our participation. At Western Sizzlin,
our cumulative return on investment from the beginning of our involvement in mid
2005 until the present is approximately 100%. Our investment in Friendly yielded
a return of approximately 80% over a one-year holding period. In both
situations, we entered these investments with a long-term mindset and never sold
a share in the public market. With Friendly, the company was sold with our
support to a private equity firm because its price, in our assessment, reflected
full value. Our decision, we determined, was in the best interests of all
shareholders.
Proxy Governance, Inc.,
another independent proxy advisory firm, also took issue with the board when
reporting its recommendation: "While noting that Biglari's experience with
Western Sizzlin does in fact include both franchised and company-owned
locations, for example, we also question the assertion -- from a board composed
of nearly as many university chancellors as executives with industry background
-- that firsthand experience in the company's narrowly-defined business segment
is a necessary condition for successful contribution to the board." In fact, not
only does Proxy Governance disagree with the board's view, but it favors our
plan: "We support the [Lion Fund's] proxy because we believe the dissident
nominees will bring a new, and sorely- needed, accountability to the company,
and the dissidents' plan represents the better alternative for reversing the
long decline in shareholder value. We disagree with management's inferences
about necessary qualifications for successful board service, and feel in
particular that the dissident nominees not only have the necessary business
acumen to contribute meaningfully, but will also be committed to stewardship of
shareholders' interests."
*************
The
purpose of this proxy battle is not just to win two board seats. Rather, the
proxy contest is dedicated to a change in board leadership and therefore in the
future direction of the company so that shareholders, of whom we are numbered,
finally begin to earn a satisfactory return on their investment. However, we
have growing concerns about the decisions the board may make should we be
victorious on March 7. Our unrest has been prompted by the bombast in the
board's most recent letter: "The reality is that this election is not an
endorsement of Lion Fund's plans and it should not be." In reply we inquire: Why
are shareholders electing us (and not the incumbents) if they do not concur with
our plans and ideas? The board must understand that shareholders own the company
and will decide the fate of its leadership and future. If shareholders vote with
us, the board is duty bound to listen to them.
Because
of the recent comments of the board, we want to be absolutely clear about our
intentions: We purposely identified Messrs. Gilman and Williamson as the
directors who must be removed because if we are going to guide Steak n Shake in
a new, more productive direction, we must change the board leadership. We
ourselves must assume the leading positions on the board. Needless to say, the
current proxy battle became absolutely necessary only because it was the sole
method to change the leadership and to begin transforming the culture of the
organization.
The
reelected members of the board have an obligation to the shareholders not to do
anything that will impede the progress shareholders desire. For instance, the
directors are obliged not to reappoint Alan Gilman or James Williamson to the
board if shareholders vote both of them off. The often-cited fallacy that
maintaining the status quo is in the "interest of continuity" or "stability"
will not hold up. Neither can the board temporize by insisting that it needs one
more year; shareholders have given them enough time, namely a decade. As I wrote
you in my February 21, 2008 letter, "Entrenchment strategies may be defendable
under Indiana law but not under the ethical laws that govern one's reputation."
Consequently, we are hopeful that the other directors value their reputations
and will act in accordance with the desires of the majority of
shareholders.
Concerning
the position of chairman, we believe that none of the remaining directors is
ideally suited for the post. Independent proxy advisory firm Glass Lewis &
Co. observed, "We have other concerns regarding the performance of certain
directors ... . At last year's annual meeting, directors Dunn, Gilman, Kelley
and Williamson all received over a 25.0% withhold vote." Mr. Kelley led with 29%
of the votes withheld. Mr. Kelley is not independent because he is currently
employed by the company in a senior real estate advisory role. When he sold his
franchised restaurants in a related-party transaction to the company in fiscal
2005, he became a company employee. (Incidentally, Messrs. Gilman and Williamson
were shareholders and directors of Mr. Kelley's business.) In contrast, we are
independent, would serve as the ones with the most financial stake in the
boardroom, have the most experience in the capital markets, and have deep
experience with other restaurant operations. Thus, we will propose my
appointment as non-executive chairman of the board. Concurrently, the board must
appoint a new interim CEO. Under new leadership the board will maintain
continuity and will be in a better position to recruit a permanent
entrepreneurial CEO who shares our work ethic, business philosophy, and
unyielding pursuit of excellence.
We have
said privately and publicly that, once elected, we will seek to work on a
collaborative basis with the reelected directors. While our ideal design is to
work cooperatively with the directors, we will never forget that we work for
shareholders.
************
Institutional
Shareholder Services, Glass Lewis & Co., Proxy Governance, Inc., and
Egan-Jones Proxy Services unanimously recommended to Steak n Shake shareholders
to vote the GOLD proxy card.
ISS said
in its report, "[T]he company's stock price and operating margins have
underperformed its peer group over the last five year period. Additionally, the
market seems to have little confidence in the current board's ability to execute
its turnaround plan ... ." ISS also said that it "believes that it may be a
deterring factor for any new CEO to join the company and the board given that
there are two former CEOs on the board ... . ISS notes that the company has been
conducting a CEO search since the departure of the previous CEO in August 2007."
ISS also wrote, "Four of the nine board members are above the stipulated age
limit as per company's corporate governance guidelines."
Glass
Lewis & Co. opined, "[T]he current board has done little to hold executives
accountable for the long-term performance of the business. Moreover, the
directors have taken recent action to entrench themselves on the board. As such,
we believe that new independent voices are needed on the Steak n Shake board to
effect change."
Proxy
Governance, Inc. summarized, "It is difficult to rebut the dissidents' central
charge -- that the company's performance over the past decade has destroyed
significant shareholder value, and the strategies and operating practices it
continues to pursue are ill-suited to a corporate revitalization ... . [T]he
dissidents' plan represents the better alternative for reversing the long
decline in shareholder value."
We would
appreciate your support in this crucial moment in the company's history.
Ultimately, the critical step of changing board leadership will be yours, the
shareholders of the company, on March 7, when you vote on the referendum. Phil
and I lay our reputations on the line that we are in the stock for the long
haul, that we have your best interests in mind, and that we will work tirelessly
to turn Steak n Shake around to your advantage.
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Sincerely,
|
|
|
|
/s/
Sardar Biglari
|
|
|
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Sardar
Biglari
|
Source:
Western Sizzlin Corporation