Sardar Biglari lost another proxy fight against Cracker Barrel this week. That was not a surprise. The activist investor and CEO of Biglari Holdings has run so many proxy battles against the family-dining chain operator that we’ve lost count. And he has lost every one of them.
It’s long past time to give it a rest. Biglari has wasted who knows how many millions of dollars and countless hours of staff time on these efforts to satisfy what at this point is simply an ego-driven exercise. He needs to sell his stock and move on.
Biglari had enormous potential when he first emerged as an activist investor 17 years ago. He rightly targeted companies in need of some energy and new methods of thinking. He treated activist campaigns like the contests they are, creating websites and erecting billboards around corporate headquarters, all in a bid to convince investors that change is necessary.
The brands he targeted all needed a dose of energy, including the buffet brand Western Sizzlin, the family-dining chain Friendly’s, Steak n Shake and then Cracker Barrel. In many respects, his moves would accomplish exactly what these brands needed.
His investment in Cracker Barrel was particularly prescient. His company invested in the company in 2011 when the stock price was in the $40s. The company had quietly operated for a decade with the same management team.
Yet by the time Biglari targeted Cracker Barrel, he had already earned a reputation (rightly) for quiet takeovers. He had done so with Western Sizzlin, and then with Steak n Shake. He used his seats on the board to oust dissidents and name himself chairman. He then renamed the company Biglari Holdings and merged it with Western Sizzlin.
And then he made several questionable moves, notably an effort to have him paid like a private-equity executive rather than the CEO of a publicly-traded restaurant chain operator.
The takeover effectively means that Biglari acquired Steak n Shake without providing investors with a premium on their stock value.
And so, in 2011, when Biglari had his best (by far) chance to win seats on the Cracker Barrel board, shareholders turned him down. Yet he pushed again in subsequent years, winning fewer votes each time because Cracker Barrel stock took off. He’s periodically come back, for who knows what reason, perhaps just to remind executives that he still exists.
As I’ve noted before, it’s difficult to argue that Biglari really lost when it comes to Cracker Barrel because he benefitted both by the company’s stock growth and its dividends. He’s made well over $1 billion for his company on that investment.
As such, it was not exactly a mistake to have held onto Cracker Barrel stock. But at this point, he probably should have exited that investment when he reached his truce with the company two years ago. Instead, he held onto much of the stock. When the value of that stock fell, he launched another effort to get seats on the board, this time with the same level of effort as his first one.
But the same issues that were in place in 2011 remain today. And now investors have 13 more years of evidence to keep Biglari off the board. Notably: The company bought up its own stock without retiring it, and instead Biglari votes the shares as if he owns them, which prevents any sort of dissent.
There is also the matter of the performance of Steak n Shake, which avoided bankruptcy in 2021 only because Biglari decided at the last minute to pay off its debt. System sales there fell 11% in 2023, according to Technomic. And they are down 28.5% over the past five years.
Biglari doesn’t speak to media or hold any quarterly earnings calls, so we can’t quite understand what he’s thinking when it comes to deals like this. But our guess is that he saw an opportunity, as Cracker Barrel has lost about 30% of its value over the past year, and two-thirds of its value since its post-pandemic peak.
Yet he had about as much a chance of getting on the board as I did, which made this largely an exercise in ego, one that wasted more time and money.
Meanwhile, if Biglari wanted another chain to take over, he could have done so simply by cashing out his shares and using some of that money to buy one of the many different concepts that could be had for a fraction of their former value. Or perhaps he could target a different restaurant company whose stock is underperforming the market.
We doubt any of that will happen anytime soon. It should have happened long before now.