Steak and Shake has truly become an outside-the-box corporation.
They’re diversifying from sandwiches and shakes to, well, insurance thanks to the vision of their chairman.
Fremont Michigan InsuraCorp (FMMH.OB) execs must have been pretty surprised when they heard that Steak and Shake was making an unsolicited bid for their company.
AP: [Steak and Shake] said it would pay $24.50 per share, half in cash and half in Steak n Shake stock. Steak n Shake said the offer represents an 11.3 per cent premium to Fremont’s Monday closing price. Fremont’s shares trade over the counter.
A spokesman for Fremont, an insurance company, said Tuesday that its board would meet to discuss the unsolicited bid and to prepare a response.
Ridiculous? The market doesn’t think so, SNS shares popped 10% today and have done very well over the last few weeks.
What are they rallying on? Here’s the vision of Steak and Shake’s chairman, Sardar Bilgari:
Steak and Shake 2009 Report: Simply because profits are generated in the restaurant business doesn’t mean the money must be reinvested there. The Steak n Shake restaurant chain has been resuscitated and now enjoys prodigious cash flows. The parent firm has been reorganized as a holding company and thus is now in the business of acquiring other businesses
You should be aware that we have no investment committee intruding on capital and investment decisions. Any mistakes that would occur, and I assure you there will be errors, are only mine to make.
We acknowledge that this change in corporate direction will disappoint those who favour a “pure-play,” i.e., a company in which resources are reinvested only in one line of business. Of course, you will need to form your own views on whether you are comfortable with our idiosyncrasies. Otherwise, this is not a stock for you.
Thus an investment in Steak and Shake has become a huge bet on the investment acumen of Mr. Bilgari alone, who can invest in anything, without a prior investment mandate, and without an investment committee. Which makes him essentially like a hedge fund manager and SNS a hedge fund, or perhaps more precisely a listed private equity vehicle under the control of a single opaque decision maker. Yet Investors are loving it so far.