Sardar Biglari has been unloading stock in Cracker Barrel in recent months, cutting his position more than in half to raise funds for the Steak ‘n Shake brand he controls.
It hasn’t exactly quieted him down. Biglari has been making noise about Cracker Barrel lately, ending a years-long quiet period. And now he’s ended a seven-year hiatus from making a run at the company’s board.
As my colleague Peter Romeo reported, Biglari has nominated a single person, Raymond Burbrick, the co-CEO of restaurant operator The Briad Group. Rather than nominate himself, as he’d done three previous times, Biglari is nominating someone else, hoping this effort actually succeeds. It’s perhaps a tacit acknowledgement of the investor’s repeated failure to get a board seat himself.
Biglari began buying up stock in Cracker Barrel in 2011 and, later that year, launched a proxy fight to get himself and Philip Cooley, his vice president, named to the board of directors. He lost that fight, though he came as close as he would get. He would launch two more proxy fights after that, buying up stock before each such run before compiling 19.9% at peak.
In the third proxy fight, in 2013, Biglari’s primary goal was not board representation, but to get the company’s shareholders to force a sale. Three straight years of proxy fights were unprecedented and costly.
The reasons for Biglari’s failure were relatively simple: First, the brand’s stock improved after changes the company made in response to the first attempt, notably the elevation of Sandra Cochran to be CEO, a position she has held ever since.
Second, shareholders largely distrusted Biglari after he used his position on the board of Steak ‘n Shake to engineer a full takeover of the company. Biglari won seats on the Steak ‘n Shake board in 2008, quickly became chairman, pushed other directors out, took control of the company and renamed it Biglari Holdings.
Today, he controls more than 60% of Biglari Holdings’ stock through his hedge fund, though he used company money to buy most of it and didn’t retire the stock, as is typical for stock buybacks. He has been heavily criticized for employing family members, for taking steps to solidify his own control of the company, and for paying himself rich fees for his investments.
That track record led to considerable speculation that Biglari was trying to get seats on the Cracker Barrel board to execute a similar takeover. Yet Cracker Barrel was a far bigger and more sophisticated target than the sleepy Steak ‘n Shake, and the even sleepier Western Sizzlin’ before that.
Rather than walk away after the three straight proxy losses, Biglari held onto his holdings. The dividends helped prop up Biglari Holdings’ earnings in the years since, and the value of Cracker Barrel soared. That investment has worked out marvelously.
Yet shareholders remain skeptical of the investor, and his own company has lost favor on Wall Street.
In his early years at Biglari Holdings, his annual meetings—generally the only time he is available to anyone for questions—were frequently fawning affairs when he declared things like, “I’m here to make everyone some damn money.” He was routinely compared with Warren Buffett.
The stock is about a third of its value after the day Biglari made that comment. Far from making everyone some damn money, he’s lost it. According to reports, his meetings have largely been demonstrations of frustration, particularly after a 2018 decision to split the company’s stock into two classes, a move largely viewed as one designed to solidify Biglari’s control.
Investors who were once firmly behind the investor now talk about a “Biglari discount.”
Meanwhile, performance at Steak ‘n Shake has suffered. Biglari’s biggest victory as a corporate executive was the chain’s turnaround, yet sales have declined in recent years and the chain is closing locations. It is now selling real estate to pay for a costly and risky conversion to a counter-service model.
It is against this backdrop that Biglari has returned to his activist roots and dusted off his challenge to Cracker Barrel, even though his stock holdings are down to 8.7%.
Interestingly, Biglari has as much ammunition as he ever had. Cracker Barrel agreed to invest up to $140 million in Punch Bowl Social. But just weeks into the pandemic, the company wrote off that investment. Biglari argues that Cracker Barrel should have at least waited to see what kind of federal stimulus was available—though, to be fair, it doesn’t appear that the stimulus would have helped, anyway.
That decision will play a central role in the proxy fight, assuming there is one and the two do not settle, which doesn’t seem likely. Then again, the entire Biglari-Cracker Barrel saga has been one surprise after the other.
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