Biglari set to make big move on Cracker Barrel

Prominent corporate advisory firm Institutional Shareholder Services Inc. is backing Cracker Barrel's board of directors in a proxy fight with investment firm Biglari Holdings Inc., but it also said shareholders should not support an anti-takeover measure the restaurant operator wants ratified.

Biglari Holdings began buying Cracker Barrel shares in June and has regulatory approval to buy a nearly 50 percent stake in the company. It currently owns slightly more than 10 percent, according to a report issued Wednesday by ISS.

Biglari is based in San Antonio and controlled by Sardar Biglari. It also owns Indianapolis-based Steak `n Shake and Western Sizzlin restaurant chains. IBJ reported in October that Cracker Barrel was trying to keep Biglari at bay.

Biglari has complained that Cracker Barrel isn't living up to its potential. The investor also has said that the restaurant should provide more detailed disclosures about its different business units and that the directors should invest more of their own money in the company.

Cracker Barrel Old Country Store Inc., based in Lebanon, Tenn., will hold its annual shareholder meeting Dec. 20, and Biglari is seeking a seat on the company's board of directors. Of the 13 directors, 11 are up for reelection and two are stepping down.

ISS said in its report that Biglari raises a number of points about operating performance and transparency that the board should consider. But it also said the company appears to have regained its step after stumbling during the recession, and it sees no "compelling need" for a board change.

The company reported last month its fiscal first-quarter earnings inched up slightly, helped by new store growth that balanced declines in revenue from stores and restaurants open at least a year.

In September, Cracker Barrel adopted a so-called "poison pill" meant to discourage Biglari from buying a bigger stake in the company after antitrust regulators approved Biglari's request to be allowed to buy up to 49.99 percent of its shares. Under the plan, stockholders would get the right to purchase more shares at a discount if any group acquired more than 10 percent of the common stock.

ISS said that threshold is too low and shareholders should not support the plan, which "may deter legitimate investment by shareholders that do not intend to undertake an opportunistic, hostile takeover attempt."

Cracker Barrel said it was pleased with the ISS recommendation regarding its directors, but it urged shareholders to vote for the poison pill provision. It said in a statement that plan is important to ensure "that neither Sardar Biglari nor anyone else can take over Cracker Barrel without paying a change-of-control premium to all shareholders."

Biglari Holdings spokesman Larry Miller said in an email they were disappointed in the board recommendation. He said they found the conclusion "inexplicable in view of much of the commentary that precedes it and especially in view of ISS's conclusion" that the poison pill was not in the best interest of shareholders.

Later, Miller sought to clarify his earlier remarks by noting that customer traffic has been down for seven consecutive years and that Cracker Barrel has spent $600 million in that time but operating income has declined. "The largest stockholder of the company is seeking one board seat of 11. These simple facts are all one needs to know to make the right decision."

Cracker Barrel has 608 locations in 42 states.

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