Wall Street Journal
A small Minneapolis hedge fund has tried to take a bite out of the company that runs Steak ‘n Shake and the activist that runs it.
It’s a campaign that’s garnered attention among activists, no strangers to fighting and mudslinging, for its unusually colorful twists and turns.
Who is Groveland?
The hedge fund was started in 2009 and currently manages about $25 million.
It’s run by Nick Swenson, a 46 year-old trader who got his start in distressed debt and previously built a $1.7 billion high-yield debt fund before launching Groveland.
Groveland has never targeted a company the size of Biglari Holdings, which has a market capitalization of nearly $900 million.
In 2012, Groveland went after Air T Inc.AIRT +9.94%, a $57 million air cargo company, and Mr. Swenson gained a board seat that year. A year later, he waged a second campaign and gained seats for his allies in a settlement, eventually becoming chairman and CEO of the company.
Last August, Air T made an activist investment with its own capital alongside Groveland. Together they bought a 14% stake in Insignia Systems Inc.ISIG 0.00%, a retail-marketing company with a market capitalization around $37 million. Insignia then appointed Mr. Swenson to the board last November.
“Nick has had a positive impact,” Insignia CFO John Gonsior told MoneyBeat.
Mr. Biglari has flipped the script and responded to Groveland’s attacks by taking large stakes in both Air T and Insignia. He criticized Mr. Swenson for becoming chairman and CEO of Air T and for implementing a poison pill to block Mr. Biglari.
Groveland has two main issues with Biglari. The first is a licensing agreement Mr. Biglari has signed with the company for use of his name at its Steak ‘n Shake locations, a pact that would pay him 2.5% of revenue and could total close to $100 million at this point. The second is the maneuvering of Mr. Biglari’s own hedge fund, Lion Fund, at Biglari Holdings and the fund’s use of the company’s cash.
In running for the entire board of Biglari, Groveland proposed a slate of six directors, including Mr. Swenson and fellow Groveland portfolio manager Seth Barkett. The list also includes an investment banker, two lawyers and one restaurant-industry executive.
Groveland has said the board slate brings different views about governance and the management of Biglari Holdings. Biglari Holdings says they have no relevant experience.
The slate failed to win over proxy advisers Institutional Shareholder Services Inc. or Glass Lewis & Co.
“If shareholders are looking for an alternative to the status quo, the alternative offered by this dissident slate is underwhelming at best,” ISS wrote, taking the rare stance that neither side was appealing.
Glass Lewis was more open to Groveland, recommending two of the nominees with any restaurant experience: James Stryker, the restaurant executive, and Stephen Lombardo, a lawyer with experience in the industry.
Along with the slate of directors, Groveland has proposed as an interim chief executive Gene Baldwin, a restaurant consultant who has held four different sets of interim titles at various restaurants over his career, as well as led a franchise business.
“Gene is definitely the person that I would call to get a restaurant company back on track,” said John Hamburger, the founder of industry publication Franchise Times.
By David Benoit
Source: Wall Street Journal | Click Link