Cracker Barrel's Chance to Swat Away Biglari

Yawn! Another day, another attempt by Sardar Biglari to get management at Cracker Barrel (NASDAQ: CBRL  ) to do something -- anything! -- he suggests. This time, he's offering to buy the company himself, or barring that, urging the company to initiate a buyback of his stock because, according to the SEC filing, "we would not want to leave our money in your care."

There are a few obstacles to Biglari acquiring the restaurant chain, not least of which is that laws in Tennessee, where Cracker Barrel is based, prevent hostile takeovers and would keep his Biglari Holdings (NYSE: BH  ) from completing the deal. So if management would assent, he'd like it very much to help him get the law changed.

Earlier this year, Biglari rejected a Cracker Barrel offer to buy back his stock at prevailing market prices to get him to go away. Instead, he recommended the company buy back outstanding shares through a repurchase program or, if it had so much money to burn, initiate a special dividend. As Biglari remarked at the time, he was a buy-and-hold investor who had "one of the longest time horizons in the investment world." That benchmark is apparently just under a year. Of course, shares in the chain have appreciated about 70% since then, so his holdings would be worth substantially more now than they were at the time.

Cracker Barrel shareholders have also rejected his overtures. At the company's annual stock owners meeting last month, Biglari and his vice chairman were resoundingly defeated in efforts to take seats on Cracker Barrel's board of directors. His $20-per-share special dividend proposal was shot down, too.

It seems this latest effort is related at least in part to Cracker Barrel injecting itself into the kerfuffle between network A&E and the biggest reality show on cable, Duck Dynasty. After its star Phil Robertson was suspended for expressing deeply held religious beliefs regarding homosexuality, Cracker Barrel removed some of the show's branded merchandise from its stores -- only to run into a buzz saw of criticism from restaurant patrons who are fans of the show. Cracker Barrel quickly reversed course and restored the items to its store, but Biglari said the incident was "another example of poor judgment" by management.

Of course, Biglari's quixotic efforts to reform Cracker Barrel's management don't seem to be the most judicious use of judgment, either. Unlike Darden Restaurants, which at least tried to appease an activist investor by saying it would spin off its Red Lobster chain, Biglari seems to realize -- finally -- he's just butting his head against the wall. This latest proposal gives him a somewhat graceful way out.  

Even though it might cost the restaurant chain more today than it would have earlier this year, Cracker Barrel might find it advantageous in the long run to pay now instead of having to continuously pay over time to rebut Biglari's recurring big ideas. It's obvious management will never sell the company to Biglari, so buying his shares could finally allow Cracker Barrel to rid itself of a gadfly that's been buzzing in its ear for too long.

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  • Report this Comment On December 30, 2013, at 2:04 PM, AnsgarJohn wrote:

    Dear Jim:

    We have called upon the Board of Directors of Cracker Barrel Old Country Store, Inc. to undertake a value maximization process by reviewing all potential extraordinary transactions, including the sale of the Company. The Board’s primary aim should be to sell to the highest bidder in order to create a realization of Cracker Barrel’s value. As the Company’s lead investor, owning nearly 20% of the outstanding shares, we are willing to lead the process by submitting a bid. But, as you are well aware, Tennessee law currently restricts our ability to engage in such a transaction. Thus, we request that the Board support our efforts to seek an amendment to the state law that would give all shareholders the ability to decide the future of their Company.

    The value of the business, or any business, depends on who is in control of the assets. We believe Cracker Barrel’s assets would be far more productive under our leadership than in the hands of present leadership. Thus, we are willing to purchase the business because we perceive a significant upside under our management. But other sophisticated buyers also should have the opportunity to bid for the Company.

    We think Cracker Barrel’s earning power is far too low in your hands. Current management appears relatively successful because of the dismal performance under the former CEO. We firmly believe that neither you nor your management has a deep understanding of how substantial value can be created. It takes an entrepreneurial mind. To illustrate, we had to drive the Board and management to license products to third parties. Now that you see the benefits to the business, management claims the idea was part of its plan. But we have no interest in gaining credit; our interest lies in making money. Yet it is obvious you will have difficulty growing earnings through operating performance henceforth. We are convinced you are leaving a ton of value on the table. In contrast, the sale of the Company will create immediate value for all.

    If you are confident in your ability, then, alternatively, you should take on leverage and do a share repurchase. We would consider selling our entire position because we would not want to leave our money in your care. The handling of the Duck Dynasty controversy is another example of poor judgment.

    Naturally, if our bid is the highest offer, then the Board’s fiduciary duty should dictate a sale to us. We have been working closely with an investment banking firm to arrange the financing required for us to complete the transaction. Consequently, we are prepared to collaborate with the Board in order to amend Tennessee law, thereby placing us in a position to provide the Board with a proposal that would maximize value for all shareholders. All options are on the table.

    Should the Board refuse to take meaningful steps to engage in an extraordinary transaction, including the public announcement of its commencement of such a process, we then intend to exercise any and all rights and remedies at our disposal, including a call for a special meeting of shareholders.

    We remain resolute in our quest for value maximization.


    /s/ Sardar Biglari

    Sardar Biglari

  • Report this Comment On December 30, 2013, at 2:08 PM, AnsgarJohn wrote:

    Maybe Biglari, like Buffett, should read "How to make friends and influence people."

    (Nasdaq:CBRL) said today that its Board of Directors has considered both Sardar Biglari's recent filing and subsequent letter demanding that the Company commence a sale process, and has determined that the continued execution of the Company's existing business strategy is currently the proper course of action for the long-term best interests of the Company and its shareholders.

    Commenting on the decision, James W. Bradford, Chairman of the Board of Cracker Barrel said: "We are disappointed that Mr. Biglari is seeking to call a special meeting to vote on a proposal requesting that the Company commence a sale process, particularly in light of his defeat by substantial margins in three consecutive proxy contests. Cracker Barrel's Board of Directors continues to believe that the execution of management's existing business strategy will create the most value for all shareholders. The Board regularly evaluates all options to serve the best interests of the Company and its shareholders and will continue to do so."

  • Report this Comment On December 31, 2013, at 2:46 AM, dwduke wrote:

    The Robertson's might could consider buying Cracker Barrel and own it out right. Miss Kay could contribute more southern recipes, and the draw to Cracker Barrel would be even more, and Mr. Biglari would not get any of the profits.

  • Report this Comment On January 01, 2014, at 10:24 AM, FREEHIKER wrote:

    If he is unhappy with the way the business is operating, he can always call his broker and sell.

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