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Leadership

Sardar Biglari tries again to control a seat on Cracker Barrel’s board

The owner of Steak 'n Shake has started his fourth proxy fight against the company, having nominated Raymond Barbrick, co-CEO of franchise operator The Briad Group.
Photograph: Shutterstock

Steak ‘n Shake owner Sardar Biglari is resuming his push for more influence on Cracker Barrel Old County Stores by nominating an ally, The Briad Group co-CEO  and COO Raymond Barbrick, for a seat on the nostalgia-themed chain’s board of directors.

Companies affiliated with Biglari, an activist investor who successfully wrested control of Steak ‘n Shake in 2008 and the Western Sizzlin’ budget steakhouse chain beforehand, filed Securities and Exchange Commission documents to put Barbrick’s name on the proxy list of nominees. Biglari through his hedge funds controls 8.7% of Cracker Barrel stock. This will be the investor's fourth try to control a seat on the company's board.

The Briad Group is a franchisee of Wendy’s, Marriott and Hilton. It holds the rights to develop and operate units of the Zinburger casual chain outside of Arizona. The company announced in late June that it was permanently closing 15 of its 18 Zinburger branches because of the pandemic and would not open any additional units.

It was also one of TGI Friday’s largest domestic franchisees until the restaurants were sold to the franchisor earlier this year.

The filing noted that Barbrick has granted Biglari the power of attorney to act on his behalf.

Cracker Barrel acknowledged that it had received notification of Biglari's plan to nominate Barbrick and issued this statement:   "The board’s Nominating & Corporate Governance Committee will evaluate Mr. Barbrick’s candidacy and make a recommendation to shareholders in due course. Cracker Barrel shareholders need not take any action at this time."

Biglari has been an irritant to the management of Cracker Barrel since he amassed a significant stake in the chain in 2011. He has tried and failed to secure a board seat for himself or an associate three times since then.

Most recently, he blasted Cracker Barrel CEO Sandy Cochran for ending the company’s deal with Punch Bowl Social. Cracker Barrel had invested $140 million for a minority stake in the fun-and-food concept roughly a year ago. After the pandemic hit, Punch Bowl faced default on its loans unless Cracker Barrel or another financing source provided another injection of capital. Cochran decided not to put more money toward the venture, and instead focused on developing its other growth acquisition, Maple Street Biscuit Co.

Cracker Barrel essentially wrote off $133 million when it severed ties with Punch Bowl. Biglari lambasted Cochran in a public letter for taking the write-off before seeing what financial aid might have been extended to ventures such as Punch Bowl in the next version of a stimulus bill.

“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, referring to the aid measure that was subsequently passed unanimously by Congress. “No rational businessperson would make such an important decision until the legislation had passed and its provisions had been evaluated.”

At one point, Biglari had amassed more than 20% of Cracker Barrel shares outstanding. He subsequently sold in excess of half that interest for $472.5 million. His current holding is valued at more than $300 million.

The self-avowed disciple of investment guru Warren Buffett is active in the management of Steak ‘n Shake—much to the dismay of the diner chain’s franchisees. They have objected strongly to such moves by Biglari as heavily discounting parts of the menu and attempting to recast the concept into more of a fast-casual operation offering counter service.  About 107 units were closed before the pandemic started. Another 69 were shut during the first half of 2020.

Biglari is hoping to convert the chain to a new franchise model whereby franchisees would pay just $10,000 for fully developed and operating stores. In exchange, they would pay the franchisor 15% of sales and 50% of profits. Steak ‘n Shake lost $1.1 million in the second quarter, compared with a year-ago shortfall of $3.1 million, on revenues of $78.2 million, a drop of 49.9%.

UPDATE: This story has been updated to include a comment from Cracker Barrel.

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