Cracker Barrel, Biglari Escalate Board Battle

Editor's note: This story has been updated to clarify the parties that received a phone message from Cracker Barrel's chairman.

Both Cracker Barrel Old Country Store Inc. and activist investor and restaurant executive Sardar Biglari ratcheted up their public positions this week in Biglari's fight to gain a board seat at the restaurant company, which so far has resisted his bid.

Last week, Biglari, the chief executive of Steak N Shake and Western Sizzlin parent Biglari Holdings Inc., filed with securities regulators a letter to Cracker Barrel shareholders outlining his proposals.

The companies Biglari controls collectively hold more than 9 percent of Cracker Barrel's shares, effectively making him the largest shareholder in the Lebanon, Tenn.-based company that operates 604 family-dining restaurants.

"We do not believe the current board of directors of the company is acting in your best interests," Sardar wrote to Cracker Barrel shareholders. He asked holders to elect him to the board of directors during Cracker Barrel's Dec. 20 annual meeting and help him block Cracker Barrel management from making permanent a so-called "poison pill" measures intended to foil hostile takeovers.

"We are not seeking control of the Board of Directors, Biglari said. "However, we hope that this election will send a strong and persuasive message to the remaining incumbent directors that shareholders are dissatisfied with the company's operating performance."

Like he has done in past activist moves, with Friendly Ice Cream Corp., for example, Biglari created a website,, to communicate his positions with fellow Cracker Barrel investors.

Also last week, Cracker Barrel delivered to employees a recorded phone message by chairman Michael Woodhouse that directed parties to a Nov. 1 presentation on the proxy fight filed with regulators. The presentation "shows how we believe Cracker Barrel has stayed focused on its objectives," he said, "objectives such as planned leadership transitions and our plans to grow traffic, sales, profits, and shareholder value."

"Our presentation shows that, at the same time, Mr. Biglari has appeared to focus on his own ambitions and undisclosed agenda," Woodhouse said.

Cracker Barrel executive also contend that it would be a conflict of interest and a possible anti-trust issue for Biglari to serve on its board, as he heads Steak N Shake, which they deem a competitor.

Until recently, Biglari Holdings described Steak N Shake as a family restaurant operation, but in recent months it has begun advertising its latest prototype and business model as a quick-service concept, despite the fact the vast majority of its restaurants provide table service.

At the heart of Biglari's battle plan, is his claim that Cracker Barrel is not living up to its full potential and that it needs to be more transparent in its financial reporting, such as providing more detail about its retail business. He contends that shareholders would be better served by a board that included what he calls real owners, such as himself, with a 9.9 percent interest in the company, rather than the existing group of 21 board members and executives that in aggregate hold 5 percent of the company.

Several of the securities analysts who cover Cracker Barrel declined to comment about the proxy fight or said their companies' policies precluded them from speaking with reporters about it.

However a recent report by Morgan Keegan noted: "In our view, we believe Cracker Barrel management makes a number of credible arguments against Biglari including: 1) potential business conflicts of interest of Biglari representatives serving on competing family-segment restaurant boards; 2) Biglari's relative lack of transparency in detailing his own operating agenda, either planned for Cracker Barrel or [Biglari Holdings]; and 3) concerns surrounding Biglari's track record of corporate governance, compensation and high turnover on boards upon which he has served."

A recent research report on Cracker Barrel by Raymond James stated: "Activist: An activist shareholder with almost a 10-percent position indicated in his last 13-D filing that he will launch a proxy fight to get a board seat. We do not expect many shareholders to support his bid."

Comparatively speaking, Cracker Barrel shareholders have fared better than Biglari Holdings investors. For the most recently reported full year, ended in July, Cracker Barrel delivered earnings per share totaling about 8.1 percent of its share price, and paid dividends per share of 86 cents. For the 40 weeks ended July 6, Biglari delivered earnings per share equal to about 4.44 percent of its share price, with no dividends paid.

Brad Ludington of Keybanc Capital Market Inc. said of Biglari's actions and the reaction by Cracker Barrel's board, "It probably helps that he shook them up a little bit. They needed to make some improvements on operations."

"New CEO Sandy Cochran put out a comprehensive plan of initiatives of how they are working to turn operations around this year. I'm not going to say that wouldn't have happened without him [Biglari], but it probably spurred activity a bit," Ludington continued. "From that aspect it may have been a good thing, but at this point I don't believe it would be a great thing if he ended up on the board and I think that this management team will fight it a lot more than the one at Steak N Shake."

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