Sardar Biglari sure seems to be gearing up for another proxy fight with Cracker Barrel.
Biglari’s hedge fund, Biglari Capital, on Tuesday requested information from the highwayside family-dining chain in relation to its latest moves, notably its investment in Punch Bowl Social and its purchase of Maple Street Biscuit Co.
In a letter to the company’s corporate secretary, an attorney for Biglari Capital is requesting records related to the investment in Punch Bowl Social. Cracker Barrel in July agreed to invest up to $140 million in the eatertainment chain.
“The company has not articulated to its shareholders the expected financial impact of this investment decision or how the [Punch Bowl Social] concept bears any relation to the company’s existing Cracker Barrel brand,” Christopher Clark, attorney with Latham & Watkins, wrote in the letter.
It is also looking for records associated with the formation of its fast-casual biscuit chain, Holler & Dash. And it wants documents related to the Maple Street deal. Cracker Barrel bought Maple Street for $36 million and plans to convert Holler & Dash to that chain.
The letter says that Biglari “is unable to evaluate the board’s and management’s decision to pursue a start-up venture and the effect of an acquisition on shareholder value creation or destruction.”
Biglari is also asking for more than that, however: The investor is asking for information regarding return on invested capital.
“Since the end of fiscal 2011, 60 Cracker Barrel stores have opened, resulting in a total capital outlay of approximately $300 million,” Clark wrote. “Despite this significant investment, the company has not disclosed to shareholders over this same period the company’s return on invested capital of these stores.”
To be sure, this isn’t the first time Biglari has taken issue with a number of these topics, and it was probably inevitable that he would take issue with the investment in Punch Bowl and the purchase of Maple Street.
Biglari in March told Cracker Barrel to sell Holler & Dash, for instance. Cracker Barrel ignored that request and then bought a different and much larger fast-casual biscuit chain.
Questions about Biglari’s continued interest in Cracker Barrel have been out there for years. The activist at one point owned 20% of the chain’s stock. He ran three straight proxy fights trying to win seats on the board, only to lose all three. Biglari has instead held onto the stock, collecting an enormous amount of dividends in the process and watching the valuation soar.
But Biglari has been selling the stock more recently, and has done things such as make a loan to Fat Brands.
Biglari Capital’s ownership of Cracker Barrel is down to 8.3% of company stock, or 2 million shares, which are still worth more than $320 million.
The sale of that stock led to some speculation that Biglari would simply go away after liquidating his shares. But the latest letter suggests that either the activist plans another proxy fight or wants Cracker Barrel to think that Biglari Capital could make another run at the board.
The request for information on return on invested capital in particular harkens back to an issue Biglari raised repeatedly about Cracker Barrel’s capital allocation strategy. The letter seems to suggest that he continues to take issue with that strategy.
Biglari isn’t the first activist to question capital allocation or new concept investments. Activists routinely take issue with multiple-chain ownership and will frequently push companies to sell off ancillary investments.
And it’s always worth questioning whether such investments are a good idea. The Punch Bowl investment in particular seemed to come out of nowhere. Cracker Barrel’s stock is down 9% since that investment.
Still, Biglari has never been able to convince Cracker Barrel shareholders that he should have representatives on the board of directors—or to do anything else he’s requested, for that matter. And Biglari’s own company hasn’t exactly won over investors, either: Despite a 10% price increase this week, Biglari Holdings stock is down by a third this year and 60% over the past two years.