As Sardar Biglari buys up stock, El Pollo Loco swallows a poison pill

The chicken chain adopted a shareholder rights plan, citing Biglari Capital’s continued acquisition of the company’s shares.
El Pollo Loco Biglari
El Pollo Loco is taking steps to assure Sardar Biglari doesn't buy up more stock. | Photo courtesy of El Pollo Loco.

Sardar Biglari is buying up stock in El Pollo Loco. And El Pollo Loco does not like it.

The Costa Mesa, Calif.-based chicken chain on Wednesday said it has adopted a shareholder rights plan, which is designed to discourage investors from rapidly acquiring shares over a certain percentage, in this case 12.5% of the company’s stock. They are often known as a “poison pill.”

El Pollo Loco did this in response to the rapid acquisition of shares by Biglari Capital Corp., which is owned by Steak n Shake owner Sardar Biglari.

Biglari last month revealed that he had acquired 9.1% of El Pollo Loco shares through various affiliates and earlier this week revealed that he had acquired more shares to take that percentage up to 11.3%. El Pollo Loco said that the real percentage will be more than 12%, given that the company is buying back shares.

As such, the chicken chain is taking steps to prevent Biglari from taking that percentage much further. If he, or any other shareholder, takes their ownership of the company past 12.5% of shares, that would trigger the shareholder rights plan.

That plan would give other shareholders, other than the shareholder who triggered the plan, the ability to acquire more shares at 50% of their value.

The announcement could likely push El Pollo Loco into a fight with Biglari, who has been involved in numerous proxy fights with various publicly traded companies over the past 15 years. That has included Cracker Barrel, against which Biglari has fought several such fights, all of them losing efforts, since 2011. But in 2008 Biglari won a proxy against Steak n Shake, was then named the company’s chairman and then renamed the company Biglari Holdings and turned it into an investment vehicle.

In its announcement, El Pollo Loco said that “Biglari Capital has a track record of acquiring substantial and sometimes controlling interests in pubic restaurant companies.”

“The adoption of this rights plan is intended to ensure that shareholders are able to realize the full potential of their investment in the company and to prevent any third party from obtaining control of El Pollo Loco in a manner and at a price that are not in the best interests of the company’s shareholders,” William Floyd, chair of the El Pollo Loco board, said in a statement.

Biglari’s filings on El Pollo Loco, however, suggest that the purchases are a “passive” investment, meaning the shareholder does not plan to contact management to suggest changes in operations.

The move comes as El Pollo Loco has largely languished in the eyes of investors. Revenues last quarter declined slightly to $121.5 million largely on a 3.4% decrease in same-store sales. The company’s stock is up 8.3% so far this year.

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