This Man Wants Cracker Barrel. Will He Ever Stop Trying to Gobble It Up?


Source: Tiger Girl.

The ownership conflict behind the scenes at Cracker Barrel Old Country Store and Biglari Holdings is heating up as the calendar moves closer to 2014.

In a letter sent on Christmas Eve to the Board of Directors at Cracker Barrel, Sardar Biglari, the Chairman of Biglari Holdings, urged the company to sell itself to "the highest bidder," in an effort "to create a realization of Cracker Barrel's value."

The background
Cracker Barrel has been under siege from Sardar Biglari for the last two and half years as the activist investor and his companies have amassed a nearly $500 million or 20% ownership stake in the beloved restaurant chain. Biglari, born in Iran and raised in San Antonio, has been leading corporate takeovers since shortly after college, and his list includes chains Western Sizzlin and Steak N' Shake.

In June of 2011, he began his efforts to transform Cracker Barrel as he bought 10% of the company, and has been slowly adding to his position ever since. He believes the company's efforts are misguided in terms of how it manages its money, and he thinks it would be better suited to take on more debt. In addition, he feels the company should pay a special, one-time dividend of $20 per share thanks to its enormous pile of cash.

Biglari has maintained that he is seeking to operate in the best interests of all of the shareholders of Cracker Barrel, and that his goal in all of these efforts is simple, noting in a recent letter to shareholders, "[o]ur agenda is the same as yours: to make money."

Time and again, both the current board of directors and shareholders of Cracker Barrel have voted against his proposals and resisted his efforts, but the most recent letter presents a scathing critique of current management.

The letter
The most recent letter from Biglari called for a sale of Cracker Barrel to new ownership -- of which his company would consider a bid -- but noted that it would need support from the board of directors and a change in Tennessee state law before the process could begin. Biglari criticized current management and said:

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.

Biglari criticized current management and its lack of ability to run Cracker Barrel in a way that drives the most profit, and noted that an entrepreneurial mind at the company is simply absent. He states the company isn't doing the right things to maximize shareholder value, and adds the blunt critique "[w]e are convinced you are leaving a ton of value on the table."

He also criticized the company for the recent controversy surrounding its handling of the Duck Dynasty merchandise it carries in stores, noting that it too was "another example of poor judgment."

The future
Cracker Barrel has not issued a response to Biglari's letter, and it was only made available to the public through SEC filings. The company has continually pushed back against the proposals of Biglari, and it will likely continue to do the same here. However, with the help of an investment bank and a formal offer for the company, the board may be forced to sell out to Biglari Holdings as a result of its fiduciary duty.

Only time will tell what comes next for Cracker Barrel, but undoubtedly, there could be major changes ahead for the chain both in stores and in its corporate offices.

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