Cracker Barrel Tells Biglari to Go Away... Again


At this rate, Sardar Biglari is going to get a complex. For the third time in as many years, investors in Cracker Barrel Old Country Store forcefully rejected the activist investor's overture for seats on the board of directors and a $20-per-share special dividend.

Bigarli, head of the Biglari Holdings conglomerate of restaurant operations and holder of a 20% stake in Cracker Barrel, has been agitating for enhanced capital allocation policies at the chain. At its recent annual shareholders meeting, investors told him to take a hike in overwhelmingly large numbers -- some 70%, according to early indications. This suggests it was only Biglari and a handful of other shareholders who thought giving him and Biglari Holdings board Vice Chairman Phil Cooley a seat at the table was a good idea.

Cracker Barrel store. Source: Cracker Barrel Investor Presentation, September 2013.

Indeed, Cracker Barrel has been trying to rid itself of the activist investor for some time, even going so far as offering to buy out his shares at market prices if he would just go quietly into the night. Yet in an indication that he much preferred to remain, Biglari said at the time that not only did he reject the offer, but also he's a long-term investor with "one of the longest time horizons in the investment world." If Cracker Barrel's got so much money to burn buying him out, he suggested it buy back 20% of the company's stock or pay out a special dividend with it.

If Biglari truly does disagree with management's handling of the company, he finds himself once again in an awkward position after having rejected its overtures. With such a large stake in Cracker Barrel, he can't easily dump his shares onto the market if he wanted to get out, as that would depress the stock price and impact his own gains.

He could remain a big shareholder and have a vocal say in the direction the chain takes, but that's about all he has: a platform to shout from. Management and shareholders have both indicated they have no intention of following his guidance. Moreover, he can't really acquire any more Cracker Barrel shares without triggering the company's poison-pill defense that would substantially dilute the value of his stake.

Of course, he can't ignore the gains he's already made on his stock since he first started accumulating shares in 2011, a total return of 155% that's running well ahead of the market's 35% return.

CBRL Total Return Price Chart
CBRL Total Return Price Chart

CBRL Total Return Price data by YCharts.

No doubt the big stock purchases Biglari's made have fueled a portion of those gains, but they've also got to be due in part to how management has been directing Cracker Barrel forward. So he can't be too displeased, public commentary notwithstanding.

Two months ago the chain reported that fourth-quarter revenue fell almost 4%, leading to a 1% decline in net income, but that period also had one fewer week than the same quarter last year. On an apples-to-apples basis, Cracker Barrel continues to see sales and profits rise, and with same-store sales on the upswing, an investment here might not be as easy as shooting fish in a barrel, but it's not a stale cracker either.

Despite also owning the Steak 'n Shake and Western Sizzlin' restaurant chains, Biglari's majority interests are now in Cracker Barrel. He's got some complaints about how his own chains are being run, and that may underscore why Cracker Barrel's investors are saying, "Sardar, it's not us, it's you."

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