Cracker Barrel battling to keep Biglari at bay

Back to TopCommentsE-mailPrintBookmark and Share
Greg Andrews

Cracker Barrel is a welcoming place. Guests can sit in rocking chairs and play checkers as they wait for a friendly greeter to guide them to a table. Or they can meander through the country store stocked with rustic bric-a-brac.

Sardar Biglari mug Biglari

But the Tennessee-based chain isn’t extending any of its folksy, down-home hospitality to Sardar Biglari, the Texas hedge fund investor who this spring scarfed up so many shares he became the company’s largest shareholder.

Since then, Cracker Barrel Old Country Store Inc. has rejected Biglari’s request that directors appoint him and business partner Phil Cooley to the board. It also has rolled out a “poison pill” plan that would deter outside investors from taking over the business without negotiating with the board first.

No one who followed Biglari’s pursuit of Indianapolis-based Steak n Shake Co. a few years ago should be surprised what happened next. The slender executive girded for battle, rolling out the activist website enhancecrackerbarrel.com and launching a proxy fight aimed at electing him and Cooley to the company’s board at its Dec. 20 annual meeting.

Biglari, 34, knows this game well, and plays it with aplomb. At Steak n Shake, he began buying shares in 2007 and rose to CEO scarcely a year later. Now, the locally based Steak n Shake chain is the centerpiece of Biglari Holdings Inc., the publicly traded firm he runs out of San Antonio.

In a September press release, Cracker Barrel argued that appointing Biglari to the board “would create serious and inappropriate business conflicts of interest,” given that he leads Steak n Shake, a competing restaurant chain. Further, the board expressed misgivings about his background and qualifications and “uncertainty over Mr. Biglari’s ultimate agenda.”

You can understand why Biglari would make board members nervous. He initially called for greater transparency, asking that the company break out its retail and restaurant sales separately.

Since then, he’s turned up the heat, attacking board members for spending barely $250,000 to buy shares on the open market since 2003, a pittance compared with the $100 million he and affiliates spent to amass a 9.3-percent stake.

“Our concern over Cracker Barrel’s leadership stems from its poor strategy, poor operating performance, poor financial disclosure and lack of ownership, which, if left uncorrected ... will lead to poor shareholder returns,” he said in a Sept. 13 letter to shareholders.

Biglari swooped in because Cracker Barrel is a little banged up these days. The stock is trading at around $41.50, down 28 percent since November. Unlike many restaurant rivals, the company has avoided using heavy discounting to pull in customers. Even so, rising commodity prices have squeezed profit.

Biglari—who couldn’t be reached for comment—no doubt will trumpet his success at Steak n Shake to help win over Cracker Barrel shareholders. After taking Steak n Shake’s helm, he slashed expenses and rolled out $4 value meals. The strategy helped halt a 14-quarter slide in same-store sales. The chain now has reported rising same-store results for 15 straight quarters.

Even so, analysts doubt Biglari will stir up enough Cracker Barrel shareholders to win a spot on its board. But they say he probably won’t have to to achieve his ultimate goal—pocket a handsome profit on his investment.

Analysts think the stock could spring higher and is unlikely to slip further—in part because of the pressure Biglari is applying to boost results.

It also helps that the 600-restaurant chain is more insulated from competition than many other eateries—thanks to locations off interstates in small towns and rural areas, where Cracker Barrels often are the only full-service option.

Even more significant: Because Cracker Barrel shares are depressed, the company’s stock market value is just $1 billion—barely more than the real estate value of the 400 locations the company owns, Raymond James analyst Bryan Elliott estimated in a report. He said that means investors are valuing the restaurant operations at only around $200 million.

In his Sept. 13 missive to shareholders, Biglari said he has the drive and savvy to help turns things around—and get investors excited about the company again.

“I believe the power of the brand has covered up board missteps,” he wrote. “This … proxy contest centers on placing a real owner on the board of a company with an A+ brand that has failed to produce A+ performance. We blame the board for mediocrity.”•


Post a comment to this story

We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
You are legally responsible for what you post and your anonymity is not guaranteed.
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
Subscribe to IBJ
  1. By Mr. Lee's own admission, he basically ran pro-bono ads on the billboard. Paying advertisers didn't want ads on a controversial, ugly billboard that turned off customers. At least one of Mr. Lee's free advertisers dropped out early because they found that Mr. Lee's advertising was having negative impact. So Mr. Lee is disingenous to say the city now owes him for lost revenue. Mr. Lee quickly realized his monstrosity had a dim future and is trying to get the city to bail him out. And that's why the billboard came down so quickly.

  2. Merchants Square is back. The small strip center to the south of 116th is 100% leased, McAlister’s is doing well in the outlot building. The former O’Charleys is leased but is going through permitting with the State and the town of Carmel. Mac Grill is closing all of their Indy locations (not just Merchants) and this will allow for a new restaurant concept to backfill both of their locations. As for the north side of 116th a new dinner movie theater and brewery is under construction to fill most of the vacancy left by Hobby Lobby and Old Navy.

  3. Yes it does have an ethics commission which enforce the law which prohibits 12 specific items. google it

  4. Thanks for reading and replying. If you want to see the differentiation for research, speaking and consulting, check out the spreadsheet I linked to at the bottom of the post; it is broken out exactly that way. I can only include so much detail in a blog post before it becomes something other than a blog post.

  5. 1. There is no allegation of corruption, Marty, to imply otherwise if false. 2. Is the "State Rule" a law? I suspect not. 3. Is Mr. Woodruff obligated via an employment agreement (contractual obligation) to not work with the engineering firm? 4. In many states a right to earn a living will trump non-competes and other contractual obligations, does Mr. Woodruff's personal right to earn a living trump any contractual obligations that might or might not be out there. 5. Lawyers in state government routinely go work for law firms they were formally working with in their regulatory actions. You can see a steady stream to firms like B&D from state government. It would be interesting for IBJ to do a review of current lawyers and find out how their past decisions affected the law firms clients. Since there is a buffer between regulated company and the regulator working for a law firm technically is not in violation of ethics but you have to wonder if decisions were made in favor of certain firms and quid pro quo jobs resulted. Start with the DOI in this review. Very interesting.