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Cracker Barrel to Biglari: No Way

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In keeping with season's greetings, Biglari Holdings' (NYSE: BH  ) Sardar Biglari wrote another open letter to Cracker Barrel Old Country Store (NASDAQ: CBRL  ) , this time asking that management immediately consider a sale of the company -- preferably to Biglari. The letter marks yet another ambitious effort to change the direction of the company, which is nearly 20% owned by Biglari and, for some time, a big winner on the public markets. The activist investor hasn't had much luck in swaying the opinion of his fellow Cracker Barrel shareholders, though that is not to say his points aren't valid. What are the chances the newest request will go through?

For a couple of years, Biglari has made his opinion well-known regarding the efficacy of Cracker Barrel's management team. The investor, who has conducted very successful turnarounds of restaurant chains Steak 'n Shake and Western Sizzlin', has a strong distaste for Cracker Barrel's capital allocation practices. His demands have ranged from better reporting of new store ROIs to new board members, special dividends, and now, a sale.

For three years, Cracker Barrel shareholders have rejected all motions put forth by Biglari. This is likely due to the fact that in just two years, the stock has appreciated nearly 115%. In five years, it's pushing a 500% return. When investors are making those kinds of returns, especially for a roadside diner, a call to arms is not well received.

In the final days of the just-ended year, Biglari said that he was willing to make an attractive bid for the company. While his firm is already the largest shareholder (and has made hundreds of millions on the stock), the investor cannot seem to express enough desire for change at the management level.

The offer was quickly rebuffed by Cracker Barrel.

No deal
Not only will Cracker Barrel's management team not consider a sale to Biglari Holdings, it will not take the investment firm's advice to consider an auction sale at all. The investor can push for a special shareholder meeting to vote on the matter, but that's about as far as he can go without the board's support.

Under the laws of Tennessee, where the company is based, Biglari can't even make a bid for the company's assets due to the size of his current stake. Gaining shares on the open market isn't a possibility either, as the company used a poison-pill tactic awhile back to prevent his stake from growing beyond its current 20%.

Biglari's ambitions are in the hands of shareholders and they have yet to receive him positively. While there could be a surprise on the horizon, investors won't see much in the way of a high-profile buyout anytime soon. With a 73% stock price gain in 2013, most aren't worried.

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Note: A previous version of this article inaccurately stated that Mr. Biglari would require shareholder and Board approval to make a bid for Cracker Barrel's assets. The Fool regrets the error. 

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Michael Lewis

Michael is a value-oriented investment analyst with a specific interest in retail and media businesses. Before coming to the Fool, Michael worked with private investment funds focusing on deep value and special situations. Currently living in the media capital of the world--Los Angeles, California.

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9/2/2015 4:02 PM
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