You're No Warren Buffett, Steak n Shake

Remember when Octomom tried to look like Angelina Jolie? Steak n Shake (NYSE: SNS  ) is trying to do something similar, with its recent channeling of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) . But instead of lip-puffing Botox and a new layered 'do, Steak n Shake is going for a reverse split and an insurance-company acquisition.

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 (NYSE: BBI  ) and Sirius XM Radio (Nasdaq: SIRI  ) don't get their stock prices above a buck soon, they, too, will probably go for a reverse play.

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 (Nasdaq: WEST  ) , going for a small insurer is a head-scratcher, unless Biglari grew up with a Buffett poster in his room.

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.

Berkshire Hathaway is a choice of Motley Fool Stock Advisor and an Inside Value selection. The Fool owns shares of Berkshire Hathaway and Steak n Shake. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is a fan of steak burgers and premium shakes. He owns no shares in any of the stocks in this article and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (20)

Comments from our Foolish Readers

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  • Report this Comment On December 22, 2009, at 2:13 PM, Nvrweakly wrote:

    Aristotle left out a key reason for the reverse split --

    to get the stock to a price where speculators won't be as apt to froth the waters. Biglari, perhaps egotistically, suggests that his studmuffin performance to date might encourage such activity at a lower price. But, as Dizzy Dean observed, it ain't braggin if you can do it.

    Since when has following the Oracle's path become a reason for ridicule, especially at a site where Buffett usually walks on water?

    Rock on, Sardar!

  • Report this Comment On December 22, 2009, at 2:44 PM, GanznSchmuck wrote:

    This is probably one of the worst structured articles I have read on MF.

    I am not going to waist a second on Rick's mediocre note. I rather ask, if one is to choose a role model in the investment world, what is wrong about picking the best one on the field?

    He is certainly not Buffett. I dont know if he will ever come close or if he could perhaps even turn out to be a better capital allocator (god forbid I dared suggest that).

    SNS is a Million Dollar Portfolio stock. I used to be a subscriber. I became excited when it was bought. At the time I suggested i could become the best MDP stock. I then became perplexed when the new MDP manager decided to sell half of the position. I, on the other hand duplicated my position. He most definetly, as rick, does not understand a thing about SB. He must be filing kind of stupid with his decission as it has proven to cost his subscribers quite a lot of money.

    WAke up!

  • Report this Comment On December 22, 2009, at 4:33 PM, sid2286 wrote:

    I think that this is the future. A Steak N Shake empire. Who wouldn't feel comfortable buying Steak N Shake health insurance. I'm sensing that this could catch on.

    Also, thanks for explaining what was going on with SNS to me. I couldn't find any news on it.

  • Report this Comment On December 22, 2009, at 4:51 PM, kpscott wrote:

    I expect much better analysis from Rick. There's no useful content here. What is the point of this article? All it has done is ask questions but it hasn't sought to answer any of them. Is this article just a thinly veiled effort to drive web traffic to the Motley Fool site? If so, shame on you.

  • Report this Comment On December 22, 2009, at 5:00 PM, TheValueDude wrote:

    The media is creating this comparison to Buffett. I guess it's not their job to take it for what it is; an activist investor growing cash flows and allocating them as he sees fit. While I didn't agree with SB on the reverse split, it didn't affect my opinion of the company. Sadly, this article chooses to attack multiple elements of SB's plan without fully justifying the opinions. There's no reason to believe that the acquisition of Western Sizzling and Fremont Michigan Insuracorp won't be profitable for shareholders.

  • Report this Comment On December 22, 2009, at 5:25 PM, Nvrweakly wrote:

    To the extent that Aristotle is "the media," I suppose this comparison is a media creation. But it's hard to ignore the parallel path of a young man who founds his investment firm at a tender age, takes over a small company as a value investor, converts it to a holding company and then moves into the insurance business. Biglari can't copycat his way to Buffettitude, but his decisions so far have seemed solid -- and have been affirmed by Mr. Market.

  • Report this Comment On December 22, 2009, at 7:51 PM, scott0807 wrote:

    the problem is, with so much capitol, even buffett can no longer be buffett. who's next? MKL? SNS? (i would be accumulating both)

  • Report this Comment On December 22, 2009, at 8:25 PM, gscharton wrote:

    This article needs some real work. I am all for criticism if it's warranted...

    But seriously, the market agrees as does anyone with half a brain that SB has done nothing but look out for shareholder's interest and done all he can to retain and grow value.

  • Report this Comment On December 22, 2009, at 10:15 PM, navin007 wrote:

    This article is a great example of what is wrong with the Motley Fool. Bad articles from bad investors.

    This article almost as bad as Motley Fool's strong recommendation to buy shares of FMD when it was trading in the upper 30's. What a bunch of fools.

    If only there was a way to block articles from Motley Fool from appearing on websites like google finance and yahoo finance..

  • Report this Comment On January 14, 2010, at 8:26 PM, kgveit2020 wrote:

    Another prediction...... don't bet the farm on SNS

    Ego's are always trouble......

  • Report this Comment On February 07, 2010, at 3:42 PM, rochish wrote:

    Does anyone know the historical investment record of Sardar Bilgari?

    Buffett's investment record before taking control of Berkshire Hathaway and Eddie Lampert's investment record before taking control of Sears/Kmart are well known.

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