Dissident shareholders fail to get key backing in Biglari Holdings board fight

Institutional Shareholder Services has refused to recommend a vote in favor of a dissident shareholder group trying to gain control of the parent company of Steak ’n Shake.

The refusal by ISS to endorse the dissident slate could sink its attempt to oust Sardar Biglari from Biglari Holdings, the San Antonio-based owner of the Indianapolis steakburger and milkshake chain.

ISS’s recommendation in proxy matters is usually followed by institutional shareholders, such as pension funds and insurance companies. They own the majority of shares in publicly traded Biglari Holdings.

Shareholders will elect directors April 9 at Biglari Holdings’ annual meeting in New York.

ISS’s recommendation on the proxy fight is in a 34-page report on the company that was released Thursday.

Although ISS failed to endorse the Groveland Group’s dissident slate, it took the unusual step of recommending that shareholders withhold their votes for the six incumbent directors at Biglari Holdings who are running for re-election. They include Sardar Biglari, the CEO and chairman of Biglari Holdings.

ISS called the dissident director candidates inexperienced and said they lack a detailed plan for running Biglari Holdings, which also owns the Western Sizzlin steakhouse chain, Maxim men’s magazine and a trucking insurance company.

“Concerns about the proposed dissident slate are heightened by the fact that a change in control could trigger considerable payments to the CEO. Given what appears to be extensive unpreparedness on the part of the dissident, we cannot recommend that shareholders support the dissident slate,” ISS said.

Biglari would collect tens of millions of dollars from Steak ’n Shake revenues under a licensing deal he signed with the company to post the branded phrase “by Biglari” on Steak ’n Shake restaurant signage. The licensing deal takes the form of a poison pill anti-takeover measure because the fees for the right to use his name are payable only if Biglari is removed from the company in a hostile takeover.

Biglari took control of Steak ’n Shake from its previous Indianapolis-based owners in 2008 after a proxy action that gained him and his supporters seats on the board.

The Groveland Group, headed by Minneapolis investor Nicholas Swenson, owns less than 1 percent of Biglari Holdings’ shares, so it doesn’t have near the ownership clout to gain control of the board on its own.

Biglari, on the other hand, controls about 20 percent of Biglari Holdings’ shares, so he presumably could re-elect the incumbent directors even if other shareholders withhold their votes, as ISS recommends.

ISS said “support is not warranted for the incumbent nominees” because of “repeated failure of governance.” It said those failures include the licensing deal with Biglari that could pay him as much as $100 million if he is removed in a takeover, and putting most of the company’s liquid assets of more than $600 million in a hedge fund controlled by Biglari alone.

“The numerous questionable governance practices, and particularly decisions by the independent directors regarding corporate investments in the CEO’s personal hedge fund, raise significant question about the stewardship of the incumbent directors,” ISS said.

Call Star reporter Jeff Swiatek at (317) 444-6483. Follow him on Twitter: @JeffSwiatek.