Inelegant Investor

The Steak N Shake Company(SNS) filed an 8-k this afternoon disclosing that it has amended its credit agreement to “permit the Company to use up to $10.0 million of surplus cash to make investments of any lawful nature, so long as no event of default exists.”

In addition, the Company has granted “Chief Executive Officer, Sardar Biglari, full power and authority to make all investment and capital allocation decisions on behalf of the Company”

Biglari, through the Lion Fund, Western Sizzlin(WEST) and other affiliated parties controls 10.1% of Steak N Shake’s outstanding stock. After taking control of WEST, Mr. Biglari gained approval to invest cash and has made various investments including SNS.  His operating strategy of halting new company-owned stores, refranchising others and focusing on increasing sales and profitability of existing stores seems to be paying off as SNS earlier this week reported impressive same-store sales gains in a very difficult environment for casual dining. SNS is now doing sufficiently well, that Mr. Biglari and the board believe that cash might be deployed for a better return outside of its core business.

Though Mr. Biglari has shown a soft spot for casual dining stocks(he held a significant stake in Friendly’s prior to WEST and SNS, and at one time attempted a tender for part of JBX), he has also purchased a financial adviser, tendered for ITEX, a bartering company, and purchased real estate for development.  It will be interesting to see where and when Mr. Biglari decides to invest this excess cash.

Disclosure: I have a position in SNS and WEST