Cracker Barrel, Biglari Continue War Of Words

The battle of words in the proxy fight between Cracker Barrel Old Country Store Inc. and activist investor Sardar Biglari is nearing an end given the family restaurant company's Dec. 20 shareholders meeting. But that hasn't stopped both parties from firing a few last rounds.

In filings with securities regulators and in public comments this week and last, Biglari maintained his position that Cracker Barrel is not performing to its fullest potential and in holding him off from a seat on the board, Cracker Barrel management has opted to "attack me, not my ideas." He is the chief executive of San Antonio, Texas-based Steak 'n Shake and Western Sizzlin' parent Biglari Holdings Inc., which alone, or along with affiliated companies, controls nearly 10 percent of Cracker Barrel's outstanding stock.

In its own latest letter to shareholders, Cracker Barrel management continued to contend that electing Biglari to the board would prove disruptive to a multi-prong company improvement initiative. In that letter, Sandra B. Cochran, Cracker Barrel president and chief executive, also noted that two proxy advisory services – Egan-Jones Ratings Co. and Institutional Shareholder Services – are recommending that stockholders vote for all the board nominees put forth by the company and not for Biglari. Glass Lewis & Co., another proxy advisory firm, has recommended shareholders vote for Bigalri's proxy.

¬Biglari has insisted that he is not attempting to take control of 608-unit Cracker Barrel, but management of the Lebanon, Tenn.-based restaurant company points to his prior history related to proxy fights. Biglari is known to garner total control over his investments — he sought, and received, control over Steak 'n Shake, which he then folded into Biglari Holdings Inc., after merging the burger-and-shake chain with Western' Sizzlin'. He was involved with major corporate changes at Friendly Ice Cream Corp., when he unsuccessfully tried to win control of that brand, well ahead of its recent bankruptcy filing.

"The board, led by chairman [Michael] Woodhouse, is diverting your attention from Cracker Barrel's lugubrious performance," Biglari charged in his latest shareholder note.

He said a review of Cracker Barrel's performance during the past seven years would reveal some "salient truths' suggesting that the board's decision making has been marred, including that while the board invested $615 million in capital expenditures during that time, per-store operating profit decreased by a cumulative 13 percent. Also, he maintained, customer traffic has decreased in 26 of the past 29 quarters, falling by a cumulative 15 percent.

Biglari characterized as "misleading" earlier statements by Cracker Barrel management that he has "slashed operational investments" and is "focused on [the] short term" at Steak 'n Shake. He stated, "I have increased spending in training, product quality, menu innovation [and] improved ambiance, among other customer-centric enhancements." He further maintained that "the real test" of his positions about what can be improved at Cracker Barrel should be "how Steak 'n Shake has performed" since he took control, which he said is reflected by that chain's 11 consecutive quarters of improved guest traffic, for cumulative growth of 28 percent, annual improvement in operating income and the turnaround in pre-tax earnings from a loss of $33 million in 2008 to a gain of $38 million in 2010."

That position was countered by Cracker Barrel's Cochran in her latest letter to shareholders, when she wrote: "Mr. Biglari has used his experience at Steak 'n Shake to support his candidacy, but we agree with ISS's [Institutional Shareholder Services'] conclusion that 'the primary consideration [for Board membership] ought not to be what the dissident nominee achieved at Steak 'n Shake, which was a broken company on a downward trend when he gained a board seat.' We are certainly not a broken company."

Cochran, in that letter, said of the current management team and board of directors, to which three new representatives were added in recent months, "In these tough economic times, we believe it is critical to stay focused on our strategic initiatives, and allow our cohesive, revitalized board to continue our progress and our history of delivering superior long-term shareholder returns.

"Since we launched our six strategic initiatives, we have reported sequential year-over-year improvements in comparable restaurant and retail sales every month," Cochran continued. "During that time, our shares have gained 24.8 percent, compared to only a 10.5 percent increase for the S&P 600 Restaurant Index. On Thanksgiving Day, we had the highest restaurant sales of any day in our company's history...We believe that Cracker Barrel is on the right track."

Cracker Barrel's annual shareholder meeting will be held Dec. 20.

EARLIER: Cracker Barrel's fork in the road
• Cracker Barrel, Biglari escalate board battle
• Cracker Barrel looks to block activist investor
• Cracker Barrel outlines future amid Biglari conflict
• Sardar Biglari takes Cracker Barrel to task

Contact Alan Liddle at alan.liddle@penton.com.
Follow him on Twitter: @AJ_NRN