Steak ‘n Shake Inc. A lawsuit against lender Fortress Investment Group LLC after the burger restaurant chain paid off incoming debt to avoid bankruptcy, accusing Fortress of misusing confidential information to make a takeover bid.
The Indiana-based milkshake and burgers chain, backed by entrepreneur Sardar Biggler, said Fortress obtained sensitive information through negotiations over a potential real estate deal with Steak ‘n Shake, and then used that knowledge to build a $ 89 million website in the company’s loans.
After obtaining the loans, Fortress made it clear that she “will not accept negotiated repayment” and said that she “will either force the company to pay off the loans in full or file for bankruptcy,” according to the complaint.
The company said Steak ‘n Shake paid off the loans in full on Friday and spent nearly $ 103 million to withdraw debt and avoid filing for bankruptcy.
The Steak & Shake lawsuit, filed Friday in Marion County Superior Court in Indiana, seeks to compensate for the alleged losses from Fortress’s proceedings.
Fortress did not immediately respond to a request for comment.
Steak ‘n Shake was struggling with an impact Covid-19 Pandemic in the restaurant business, and the transition from the table service model to the self-service. To finance the transition and respond to the pandemic, last year the company explored the sale of a portfolio of 15 real estate properties.
Fortress has expressed its desire to purchase real estate and has entered into a confidentiality agreement to obtain information about it. But the investment company didn’t make a real estate deal and started buying parts of the Steak & Shake loan from other investors, ending up with more than 50% of the balance, according to the complaint.
Stick said that Management “believed it was providing this information to a potential counterparty in a real estate deal, not to an Eagle investor,” seeking to gain control of the company by forcing the company into bankruptcy.
For months, the company has been buying parts of the loan on the open market at a discount from other investors. With the loan maturity approaching in March, the lawsuit said, Fortress said it would accept less than the full value. Lenders are generally not required to accept anything less than full repayment.
Stick said that the information provided to Fortress about the 15 properties enabled the investment firm to extrapolate the total value of the company’s properties and other details regarding Steak ‘n Shake’s value, which were useful to anyone aiming to buy a company.
The company was preparing for a possible restructuring and hired legal and financial advisors for a possible out-of-court restructuring or bankruptcy filing.
Steak ‘n Shake has its origins in a hamburger stand that was founded in 1934. It went through a series of owners before Mr. Biglari took control in 2008 and has invested heavily in expanding businesses throughout the United States and beyond.