Remember when Octomom tried to look like Angelina Jolie? Steak n Shake
Steak n Shake, the company many of us associate with cheap burgers and creative milkshakes, wants to be more than just a restaurant company. However, its Buffett envy was obvious when it engaged in a 1-for-20 reverse stock split over the weekend and offered to buy all of wee insurer Fremont Michigan InsuraCorp (OTC: FMMH) for $24.50 a share last night.
Let's go over the reverse split, a corporate move that has had several successful executions this year. Whether they occur after a chunky spin-off or as a reaction to a battered share price, reverse splits make perfect sense when a stock is trading for pocket change. If Blockbuster
Steak n Shake, on the other hand, didn't need a reverse split. Its stock was trading in the double digits before it decided to swap out every 20 shares for a single share at a price that's 20 times higher.
Investors saw this coming. Chairman Sardar Biglari's letter to shareholders earlier this month spelled out the new strategy. "Simply because profits are generated in the restaurant business doesn't mean the money must be reinvested there," he wrote. "Steak n Shake is no longer a static business."
However, after a logical nibble on fellow restaurateur Western Sizzlin
The reverse split just isn't necessary. Biglari credits the move as a way to "attract knowledgeable long-term owners," but savvy investors know that splits are zero-sum games.
Focus is what got Steak n Shake back on track. Let's hope its new diversified dreams don't derail it again.
Think of the children, Steak n Shake -- all eight of them.