Friendly Battle Turns Ugly

Jan 3 2007 | 11:34am ET

The battle for Friendly Ice Cream Corp. will be anything but a friendly one.

San Antonio, Texas, hedge fund manager Sardar Biglari has rejected the Wilbraham, Mass.-based restaurant chain’s offer of a pair of seats on its board. In response, Friendly has gone on the offensive. “We gave Mr. Biglari what he asked for. Now he wants more,” Friendly Chairman Donald Smith said. “It appears that he isn’t interested in just a voice on the board—he wants to control the board.”

In early December, Biglari sent a letter to Friendly shareholders demanding two seats on the company’s board, and launched a Web site,, to back his claims against the company’s board. In a statement, Friendly said it offered him just that, a seat for himself and The Lion Fund’s Philip Cooley. But Biglari rejected the condition that he not seek any additional board seats or solicit proxies for proposals not recommended by the board. Biglari also called for annual elections for all board members.

“In light of the company’s poor performance and total disregard for proper corporate governance, we cannot accept restrictions on our ability to hold the existing board and its management accountable for the company’s performance,” he said in a statement.

Biglari, along with Biglari Capital, the Lion Fund, and restaurant chain Western Sizzlin, which Biglari controls, together own more than 1 million Friendly shares, accounting for about 15% of the company.

Friendly’s Smith also savaged Biglari’s tenure at Western Sizzlin, where he has served as chairman since April. In a letter to Friendly shareholders sent yesterday, Smith wrote, “The results of WSC suggest that it would not be in the best interest of our shareholders to allow Mr. Biglari to control the Friendly’s Board.” He accused Biglari of using Western Sizzlin’s surplus cash to buy Friendly’s stock “rather than reinvesting in the restaurant business of WSC,” and “leveraging the credit of WSC and his hedge fund to purchase our stock.”

“Under Mr. Biglari’s leadership, WSC’s operating cash has dwindled, year-to-year earnings from operations have declined, franchised restaurants continue to be closed, and its stock price has declined significantly,” Smith added. “We believe that Mr. Biglari wants to gain control of the Board in order to redirect corporate assets for purposes other than the continued growth of Friendly’s.”

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