A U.S. hedge fund has launched a proxy battle against a small-cap fast food chain using an unconventional combination of billboard ads and a website to rattle the company’s board and get its message out to sympathizers.The Texas-based Lion Fund has posted ads on billboards around Indianapolis, Indiana, home base of The Steak n Shake Company (NYSE:SNS). The fund wants to install its chairman Sadar Biglari, 30, and his business partner and Trinity University professor Phil Cooley to the company’s board.
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| This is the billboard ad as filed with the SEC. |
With a 7% stake in the company, the fund filed a copy of its billboard ad with the SEC last week. The Portfolio News Blog has a photograph of an actual billboard alongside a highway in Indianapolis.
Saber-rattling in company’s hometown
The billboards are an intriguing tactic. If the purpose is to garner shareholder support, then targeting a small geographic location with billboards clearly is an ineffective approach.
Most likely the billboards are designed as a not-so-subtle poke at company management and the board, which earlier rebuffed the hedge fund’s demand for two board seats. According to Thomson Financial data via Yahoo! Finance, almost 60% of the company’s stock is held by institutions and mutual fund investors.
As with many proxy fights today, this battle will be fought primarily on the Web. The Lion Fund has set up a website where it slams the current board, saying directors have “faltered in their duty to shareholders.”
The site’s homepage includes an article from Barron’s on August 27 about the fund’s earlier 13D filing disclosing its stake in the company, and the fact that it had met with the board and requested two seats. There are also links to the fund’s SEC filings and a letter to shareholders in PDF.
But the investors don’t offer a whole lot of detail about their plans for the company, saying only that they will offer their ideas in “the coming months” on the website — www.enhancesteaknshake.com.
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| The Lion Fund will use the Web as its main communications channel |
Company not telling its story
As for the company, whose shares hit a two-year low on Friday, its investor relations website doesn’t acknowledge the pending proxy fight or even mention that the Lion Fund has been knocking on the door since August.
Even more important, there is nothing obvious and easily accessible on the site telling investors why current management is doing a good job of running the company and what their plans are for the future, basic stuff every company should be doing all year round.
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| The company’s IR site doesn’t communicate the company’s story and ignores the brewing battle. |
Looking around the site a bit more, I learned that Steak n Shake has been struggling with falling same-store sales and that the CEO resigned in August after five years. He has been replaced on an interim basis by board chairman Alan Gilman, 76, who was the company’s CEO from 1992 to 2003.
A news release 10 days later said Gilman has been working with senior management on a new strategic plan for the company. But it, too, is short on facts. The release says the company will make details known “in the near future.”
But that was August 23, and there has been no update on the new strategy.
There’s a long way to go before the annual meeting in February, but right now I wouldn’t cast a bet with management and the current board.
They haven’t been communicating effectively with their investors and it’s going to be difficult for them to now ask for their shareholders’ support.
It’s a shame to for companies like this who have great reputations engage in things that will blemish their “clean” appearance. As an investor it’s highly recommended that companies never withhold from those who’ve planted the seed for their structural growth.