Sardar Biglari ended whatever truce he’d had with Cracker Barrel this week, igniting a proxy fight with the nomination of five board members.
We’ve lost count how many proxy fights this makes, but it doesn’t take a rocket surgeon to figure out why he’s doing it.
Just look at the stock price.
Cracker Barrel’s stock is down 47% this year. What’s more, they’ve been in a long-time slump. The shares peaked at $175 in 2021 and have never recovered. The stock closed at just under $41 per share on Tuesday.
Stock price declines like that tend to draw activist investors like moths to a light. Which is why Cracker Barrel is hardly alone in facing the specter of activist shareholders demanding changes at the board, executive or business level.
Restaurant stocks entered trading Tuesday with average prices down 11%. By contrast, the S&P 500 index entered the day up 18%.
As such, several restaurant companies have drawn activist shareholders.
The biggest is Starbucks, which has faced not one but two activist investors in Elliott Management and Starboard Value, both of which have long track records of success in pushing changes at major companies.
Starbucks’ stock was down 20% before the company surprisingly hired Brian Niccol to be its CEO.
BJ’s Restaurants drew a pair of activist investors and reached deals with both of them. Its stock is down 17% this year.
Noodles & Company reached a deal with an activist in June. Its stock is down 47%.
Portillo’s also has an activist investor. And, you guessed it, the company’s stock is down 25%.
Activist shareholders have been more active than ever so far in 2024. Activists launched a record number of campaigns around the globe in the first half of this year, according to Barclays Investment Bank.
The job of the types of investors who launch activist campaigns is to find short-term stock price wins for large shareholders, such as rich people or pension funds and the like.
They buy up shares and push management to make changes, frequently using a playbook probably called The Idiot’s Guide to Increased Shareholder Value. They use the threat of the dreaded proxy fight, in which they run challengers for board seats.
The best ones will work with former industry executives and on occasion they’ll publish websites or take out billboards.
If the strategy works, the companies make changes that drive up the share price over a couple of years. The shareholder sells those shares at a profit and moves onto something else.
But the threat of activist shareholders can also prompt changes at companies, frequently in the corner office.
Starbucks has said its board decided on its own to bring in a new CEO and approached Niccol about the job. But it’s also common for activist involvement to prompt management changes. Indeed, if an activist does launch a proxy, it almost always results in some change at the top.
Which brings us back to Cracker Barrel. Sandra Cochran was named CEO in 2010 just as Biglari was working on his first campaign against the company. The move worked out swell, ultimately driving improvement at the chain over the following several years that boosted the company’s stock price.
Biglari made a killing off that deal, both on the increase in the stock price and on dividends the company has paid over the years his company—Steak 'n Shake owner Biglari Holdings—has owned the company.
Instead, he engineered several proxy attempts and received less and less support every time. He still has a website, enhancecrackerbarrel.com. Eventually he and Cracker Barrel called a truce in 2022 after the company named former Bloomin’ Brands Chief Brand Officer Jody Bilney to its board.
But this year’s stock price decline has apparently been too tempting, particularly given that it has cost Biglari Holdings $75 million in paper value alone.
A 47% decline would give almost any activist a shot at getting board seats and pushing significant changes. Investors, as a rule, do not like stock price declines and could welcome changes that would reverse such trends.
But Biglari’s motives are always in question. He used one such proxy fight to gain control of Steak 'n Shake, which he renamed Biglari Holdings, merged with Western Sizzlin and used it as a launch pad for collecting companies.
That, plus some moves at Biglari Holdings that many investors consider questionable, have always made it difficult for the company to convince Cracker Barrel investors to allow him or representatives on the board.
Still, activist investors are back to targeting restaurants again and Biglari apparently couldn’t resist taking on Cracker Barrel once again.