Cracker Barrel Activist Investor Seems to Hate Cracker Barrel

Call me old-fashioned, but when I invest in a business, I do so because I like the business. Crazy, I know. Activist investors see things differently, though, often investing in businesses that they think are bad in the belief that a turnaround is possible -- if everything were different. As an excellent example, look no further than Cracker Barrel's (NASDAQ: CBRL  )  ongoing wrangling with activist Sardar Biglari.

Biglari owns 19.9% of the restaurant chain and has been a big supporter of the management team for years. No, I'm just kidding -- he actually seems to hate those managers. Biglari has tried three times to get elected to the company board, losing each time "by wide and increasing margins," according to the company. Today, Biglari finally made some progress.

Next time, on a very special investor meeting...
Cracker Barrel announced that it would schedule a special shareholder meeting on April 23 to vote on some of Biglari's plans. The activist has said that the business should be open to all options, including a sale of the business. If Biglari himself were to be the chain's buyer, then so be it. He's already started working on a financing plan. 

If history has anything to say about it, Biglari's plans won't come to pass. In addition to the board failures, his attempts to push a special dividend also recently failed. When he argued for that dividend, Biglari suggested that the business could simply double its debt to make the payment -- no biggie.

Biglari argues that the current management team is lucking into its success, in part due to "the dismal performance under the former CEO." 

Other Cracker Barrel shareholders, who have proven unwilling to approve Biglari's vision in the past, seem unlikely to support his plan in April.

Biglari's success
This isn't Biglari's first time at the restaurant rodeo. Before his dive into Cracker Barrel, he managed to take on Steak n Shake, gaining a position on the board and taking over the business in 2008. That has been a decent success, although 2013 was a challenging year in which operating income dropped 38% and customer count increased a mere 2%.

Biglari said in his letter to shareholders that the fall was due to a long-term investment in the business and that he "willingly traded near-term profits for higher long-term cash flows." Only time will tell if that's what has happened at Steak n Shake.

Cracker Barrel's challenge
The restaurant "sit on down and have a meal" business model is not in vogue at the moment. As evidence: Cracker Barrel's November/December comparable-store sales declined against the same period in 2012 . Compare that to the success that fast-casual chains such as Panera and Chipotle have had recently.

Panera's comparable-store sales were up 2.8% for the first nine months of 2013, while Chipotle sales grew 4.3% over the same period. For Cracker Barrel, 2013 started much stronger than it finished, giving a bit of credence to Biglari's claims that the previous management was less than stellar.

For Cracker Barrel investors, Biglari's involvement is starting to seem like a distraction. Hopefully, the special meeting will end the dispute. If Biglari doesn't get what he wants, he could end his relationship with the company on a positive note, locking in the gains that he's made. Then Cracker Barrel can get back to business, and hopefully get 2014 back on track for growth.

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