One of the most surprising events of the coronavirus shutdown thus far, at least in the restaurant industry, occurred on March 20.
That day, Cracker Barrel opted not to keep Punch Bowl Social’s lenders from foreclosing on the chain, leaving the eatertainment concept to fend for itself and basically writing off $133 million in the process.
That decision has now drawn the ire of Cracker Barrel’s longtime nemesis, Sardar Biglari. In a letter Wednesday, the chairman of Biglari Holdings took the company to task for being so quick to write off Punch Bowl.
Biglari specifically mentioned the decision to pull support from Punch Bowl even as Congress was preparing a federal stimulus package.
“One of the most astonishing aspects of this ordeal concerns the speed and timing of your exit from Punch Bowl Social, for there was no sound justification for abandoning the investment two days before the package of the CARES Act,” Biglari wrote. “No rational businessperson would make such an important decision until the legislation had passed and its provisions had been evaluated.”
“The board and management acted hastily to rid themselves of a significant investment without first obtaining details of the $2 trillion stimulus package,” he added. “Thus, we are concerned not only with questionable investments the board and management are making but also with how they are handling those investments once they have been made.”
Biglari, whose Biglari Holdings owns Steak ‘n Shake, has reignited his activism against Cracker Barrel even as he has shed stock. Biglari controls 8.3% of Cracker Barrel shares through his hedge fund, The Lion Fund, whose principal shareholder is Biglari Holdings.
He controlled 20% of the shares at one point but has been selling stock in part to raise money for his burger chain.
Those sales now seem fortuitous. Cracker Barrel shares, much like a lot of the restaurant business, have shed almost half of their value since February. Still, his stake in Cracker Barrel has lost $168 million in value since then.
Of late, Biglari—whose company owns businesses in insurance, oil, men’s magazines, buffets and burgers—has been admonishing Cracker Barrel for buying chains too dissimilar to its flagship family-dining concept. Last year, Cracker Barrel bought Maple Street Biscuit Co., in addition to its Punch Bowl investment.
In October, he requested information on those deals, noting that the valuation on Punch Bowl was “sky-high.”
Biglari’s letter doubles down on that information request, saying it is “of utmost relevance today, in light of the company’s recent decision to walk away from Punch Bowl Social in an untimely manner and at a significant loss to Cracker Barrel investors.”
Biglari has a long history with Cracker Barrel. He has been an activist investor in the chain for nearly 10 years and has run three separate proxy fights, losing shareholder votes in each case. Rather than exit the investment, he has held those shares, living off the company’s substantial dividends and selling only recently.
His renewed campaign—he had been largely quiet for years until last year—could suggest a potential effort to gain board seats again in the future.
He may view the Punch Bowl investment as an opening. Cracker Barrel’s decision on Punch Bowl remains something of a head-scratcher, given that it came less than a year after the investment was first made.
The decision says one of two things: Either the original investment was not turning out the way Cracker Barrel hoped, or the company was so worried about its own future that it was dumping everything overboard. Neither is a good thing.
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