Early in his career, Sardar Biglari used different means to take over restaurant companies. He sold an internet service provider when he was just 22 and used the proceeds to start a hedge fund, which he used to take control of a struggling buffet chain called Western Sizzlin.
He helped engineer an activist campaign against Friendly’s, before winning seats on the Steak n Shake board in 2008. At Steak n Shake, Biglari was named chairman, then renamed the company Biglari Holdings, effectively taking over the company without actually buying it.
His acquisitions since then have been more traditional. The company has acquired Maxim Magazine, an insurance company and a pair of oil companies.
In the meantime, Biglari kept ownership of a massive number of shares in Cracker Barrel and periodically made efforts to get seats on the board, which would always be rebuffed at least in part over concerns about what the investor would do with the company when he won said seats. The concerns were numerous enough that on multiple attempts the investor proposed others for the company’s board and those candidates were voted down.
All of which makes interesting his latest move in the restaurant business: Make an actual offer to buy a restaurant chain through traditional means.
As we reported yesterday, Biglari has made an offer for the El Pollo Loco shares he does not already own. Biglari first bought up shares in the chicken chain in 2023 through his investment firm, Biglari Capital, revealing that year that he’d acquired 9.1% of those shares. That caused El Pollo Loco to adopt a “poison pill” provision, effectively banning anybody from acquiring over 12.5% of the company’s stock, unless they planned to make an offer to buy the company.
Traditionally, such poison pill tactics yield more aggressive responses on the part of activist investors but Biglari largely sat back, bought shares up to the 12.5% threshold and waited. Publicly, Biglari Holdings was a “passive investor,” meaning it wasn’t communicating with management.
It’s worth noting, however, that shortly after Biglari made those investments, El Pollo Loco’s CEO Larry Roberts left and the company hired current CEO Liz Williams shortly thereafter.
By August of last year, Biglari began buying up more shares in El Pollo Loco, ultimately getting to 15%. And in January, the investor submitted filings indicating it was now an activist investor in the chicken chain and was interested in making an offer. The company then made the offer this week.
El Pollo Loco is an interesting acquisition target. The company is currently trading below 11 times EBITDA, or earnings before interest, taxes, depreciation and amortization. The chain’s stock has hovered around $10 per share for the past two years, which might give shareholders an incentive to sell the company. Yet the valuation is just a bit higher than the amount that might interest private-equity firms.
El Pollo Loco could try and run a process in light of the Biglari offer, which would be the right thing to do. And in theory the company could attract some interest, given that more than 300 of the chain’s 500 locations are franchised. A buyer might be interested in refranchising some of its 173 corporate locations. But mostly franchised companies have been relatively attractive. Most of the best deals of the past two years have been of highly franchised companies.
At the same time, El Pollo Loco hasn’t generated much unit growth over the past five years, though average unit volumes have grown 19% over that period, according to data from Restaurant Business sister company Technomic. Any buyer would be betting it can change that.
And this isn’t exactly a thriving restaurant merger and acquisition market right now, particularly with the volatility, the weak credit markets and the relative lack of private-equity interest outside of the strongest performing companies.
It’s entirely possible, therefore, that whatever offer Biglari makes would be the best one the chain can get. Would the company take it if that was the case? It might not have a choice. The other option would be to bet it can beat Biglari in a proxy fight when the investor is holding up dollar bills in front of shareholders frustrated by a lack of movement.