Bold bets on Hoosier firms yield horrific results so far

The principals of Thomas H. Lee Partners were known as investing wizards until they came across Conseco Inc.

The Boston company burnished its reputation by buying Snapple for $135 million in 1992, then unloading it to Quaker Oats two
years later for $1.7 billion.

The results of its $500 million bet on Conseco were spectacular as well, but for the wrong reason. Thomas H. Lee Partners
scooped up preferred stock in 1999. Four years later, Conseco plunged into bankruptcy, wiping out the entire investment.

Some big-name investment firms that thought they were acquiring shares of struggling central Indiana companies on the cheap
can feel Lee’s pain, albeit not quite to the same extreme. The millions of dollars they plunked down to buy stock in local
companies over the past two years have shriveled in value, leaving them way, way below break-even.

One of the most battered is Sardar Biglari, whose Lion Fund began scooping up stock in The Steak n Shake Co. in the fall of
2007, when the company’s shares were trading above $15. It’s been mostly downhill since. Shares now fetch only around $4.50.

Biglari, who’s only 30, had been on a run before buying into the Indianapolis-based diner chain. He hit pay dirt by selling
his Internet service provider at the height of the dot-com boom, then turned his attention to activist investing.

He nearly doubled his money after his calls for more franchising and sharper management at Massachusetts-based Friendly Ice
Cream helped propel the chain into the arms of a suitor.

He’s also done well with the Virginia-based steakhouse chain Western Sizzlin Corp., which is part of the Biglari investment
group that scooped up Steak n Shake shares.

So far, the Biglari magic hasn’t carried over to Steak n Shake, where he took the reins as chairman in June and CEO in August.

"Thus far, the investment result has been dismal," Biglari wrote in a letter to Western Sizzlin shareholders this
summer.
"But we think that it will improve."

Another prominent investor already appears to be conceding defeat at Conseco, whose shares have tumbled because of investment
losses and operating woes.

A hedge fund led by Warren Lichtenstein, who made a name for himself launching hostile takeovers, a year ago amassed a 6-percent
stake in Conseco, when shares were trading at more than $14.

His fund called for reforms, saying Conseco had been "slow" to move forward with a strategic review launched the
prior April.
"Return on equity of Conseco Insurance Group is inadequate and needs to be improved as quickly as possible," it
said in a
filing.

The fund boosted its stake to 10 percent and sought the company’s permission to increase it to 22 percent, but was rebuffed.
Now, it’s moving in reverse. Last month it shrank its holdings to 7 percent by unloading 2.4 million shares-all for less than
$2.60 apiece.

Also taking a beating are activist investors in radio station operator Emmis Communications Corp.

Elkhart-based Martin Capital Management began calling for change at Emmis two years ago. It amassed more than 10 percent of
the media company, with many of the shares purchased for more than $10 apiece. The stock now trades for just 29 cents.

A terrible result, to be sure. But for Martin Capital and other battered investment firms, a little perspective is in order.
Few investors are making money in 2008, which is on track to be the worst year for stocks since 1931. And at this point, most
of the losses are just on paper. If stocks surge back, losses would at least narrow, if not disappear altogether.

A raging bull market is just what the firms need to soothe the bruised egos of their principals. That may be wishful thinking,
but at least one investment pro is keeping the hope alive. UBS AG’s David Bianco said in a report that the S&P 500 index,
which is down 41 percent in 2008, may surge 53 percent in 2009.

Retail watch list

Add another company to the list of troubled retailers.

Department store operator Bon-Ton Stores Inc., parent of the Carson Pirie Scott department store in Circle Centre mall, is
suffering under a mountain of debt and weak sales, analysts said.

Same-store sales in November tumbled 16 percent, worrisome results for a firm with little margin for error. The Pennsylvania-based
company operates 281 stores in 23 states. It ratcheted up debt two years ago by spending $1 billion to buy 142 stores —
including
the former Parisian department store in Circle Centre.

"There’s no question they are in a very, very tough spot now," Zach Newcomer, an analyst with Milwaukee-based Red
Granite Advisors,
told tradingmarkets.com.