Inside the Food Business's Priciest Stock

In a letter to shareholders that is mostly about how his restaurant chain managed to go from $23 million in losses last year to earnings of $6 million this year despite the deepening recession, Steak 'n Shake (SNS) Chairman and CEO Sardar Biglari explains why the company did a reverse stock split that made its shares the priciest in the industry.

"Daily our emphasis is on the value of the company, not on its stock price," Biglari writes [PDF]. "We are seeking to assemble and align ourselves with long-term investors whose purpose is to prosper in concert with the company." The aim for the Indianapolis company is to "dissuade speculators from participating in our stock. We are attempting to eliminate those who erroneously think that it is easier for a $10 stock to go to $20 than a $200 one to go to $400."

Shares ended last week at $14.55. Upon the split Monday, the new shares were going for about $285. Today they're at about $330 with a bullet.

He doesn't say so, but Biglari is emulating Warren Buffett, the chairman of Berkshire Hathaway (BRK.A), another Corn Belt company. That company's shares are selling for just under $100,000. Last year, they peaked at $147,000.

In a way, this tactic creates a de facto different class of stock, and so a different class of investor. Nobody's going to plunk down that much cash per share expecting the company to manage its earnings from quarter to quarter.

The company is following Berkshire in another way, too: diversification. Concurrent with the stock split, Steak 'n Shake has transformed itself into a holding company that means to invest widely both within the restaurant and otherwise. On Monday, the company announced it would buy Fremont Michigan InsuraCorp (FMMH). Steak 'n Shake is also in the process of buying competitor Western Sizzlin (WEST).