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Saturday, 08/09/2008 8:09:37 AM

Saturday, August 09, 2008 8:09:37 AM

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In new shakeup, Biglari is CEO at Steak n Shake

By Ted Evanoff and Tom Spalding

The Texas investor who shook up Steak n Shake has stepped in as chief executive officer and vowed to sell off eateries dragging down the Indianapolis restaurant chain.

Sardar Biglari promised shareholders will get a letter in 60 days outlining the full recovery plan for the company whose second-quarter loss topped $2.8 million.

Shutting an undisclosed number of unprofitable restaurants is expected to be the first step in a turnaround intended to bring back customers and revive the stock price.

Biglari, head of the San Antonio investment firm Biglari Capital, amassed more than 2.4 million shares of stock in the restaurant company over the past year, ousted senior leaders and leveraged himself into the chairmanship in June as the second-largest shareholder.

After contending Steak n Shake was slow to reform, Biglari's latest move came Thursday when he replaced Wayne Kelley, the interim chief executive officer. CEO is the second-highest position in the company after chairman of the board.

The No. 3 position, president, has been open for a year. Biglari said a search is under way to fill it with an experienced restaurant executive to run daily operations.

Wall Street reacted favorably to a stock it has been cool on for more than a year. Steak n Shake closed Friday at $7.34 a share, up 26 cents. A year ago, shares traded for more than $17.

"I think it will take a while to get going again, but I hope to see signs of improvement at least on the cost side in the next six months," said restaurant analyst Steve West of Stifel Nicolaus, an investment firm in St. Louis.

Steak n Shake owns 434 restaurants and franchises another 57. It employs 22,000 workers, including about 150 in its Downtown headquarters.

West believes Steak n Shake is planning to renovate its eateries, improve the ambience and kitchens, and in turn sell hundreds of the restaurants to investors who will run them as franchises.

Proceeds from the sales could fund more renovations and be used to buy thousands of Steak n Shake shares. Corporate buybacks, as the stock purchases are known, can favor long-term shareholders by reducing the number of shares on the open market. A stock's value can rise as the shares grow scarce.

Founded in the 1930s, the cheeseburger chain stumbled in recent years with its new chicken sandwiches, drew complaints about service and lost customers to lower-priced chains, such as McDonald's and pricier rivals including Applebee's. Analysts forecast that Steak n Shake's sales will fall about 5 percent this summer.

Wall Street did not frown on Kelley's departure as CEO. A long-time board member, he grew up in a family prominent in the Steak n Shake business but was not known as a hands-on executive.

Kelley stepped in as interim CEO during the summer as Biglari began to push out veteran leaders. Biglari, 30, the son of a prominent Texas rug merchant, has no hands-on experience in restaurants. Investors expect he will soon hire a president capable of running the chain.

"They need to get someone in who knows the everyday operations," West said. "Then, Biglari can sit there and implement strategy. That's what a CEO should be doing."

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