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Steak ‘n Shake Inc. sued lender Fortress Investment Group LLC after the burger chain paid off debt due to avoid bankruptcy, accusing Fortress of abusing confidential information to mount a takeover bid .
The Indiana-based milkshake-and-burger chain, backed by entrepreneur Sardar Biglari, said Fortress obtained sensitive information during negotiations for a possible real estate deal with Steak ‘n Shake, then used that knowledge to create a $ 89 million position in the company. the loans.
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After acquiring the loans, Fortress made it clear that it “would not accept a negotiated repayment” and said it “would force the company to repay the loans in full or file for bankruptcy,” according to the complaint.
Steak ‘n Shake paid off the loans in full on Friday, spending nearly $ 103 million to pay off debts and avoid bankruptcy, the company said.
The Steak ‘n Shake lawsuit, filed in Marion County Superior Court in Indiana on Friday, seeks to recover alleged losses from Fortress stock.
Fortress did not immediately respond to a request for comment.
Steak ‘n Shake had been grappling with the impact of the COVID-19 pandemic on the restaurant industry, moving from a table service model to self-service. To fund the transition and overcome the pandemic, the company explored the sale of a portfolio of 15 real estate properties last year.
Fortress has expressed interest in purchasing the properties and entered into a confidentiality agreement to obtain information about them. But the investment firm did not complete a real estate transaction and began to buy back part of the Steak ‘n Shake loan from other investors, ending up with more than 50% of the balance, according to the complaint.
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Steak ‘n Shake said management “believed to be providing this information to a potential counterparty to a real estate transaction, not a vulture investor” looking to potentially take control by forcing the company into bankruptcy.
For months, the company has bought part of the loan on the open market at a reduced price from other investors. But with the loan’s maturity approaching in March, Fortress said it would accept no less than full value, according to the lawsuit. Lenders are generally not required to accept anything less than a full repayment.
Steak ‘n Shake said the information provided to Fortress on the 15 properties allowed the investment firm to extrapolate the total value of the firm’s real estate and other details regarding the value of Steak’ n Shake, this which was useful to anyone wishing to purchase the company.
The company was preparing for a possible restructuring and had hired legal and financial advisers for a possible out-of-court restructuring or bankruptcy.
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Steak ‘n Shake has its roots in a burger stand founded in 1934. It went through a series of owners before Mr. Biglari took over in 2008 and invested heavily in expanding the business to the United States. and abroad.
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