Photographer: Luke Sharett/Bloomberg

Even a 284% Five-Year Gain Doesn’t Impress Cracker Barrel’s Top Shareholder

  • Sardar Biglari has tried to get control of company since 2011
  • Investor support for his proposals wanes with surging shares

Cracker Barrel Old Country Store Inc.’s biggest shareholder and noisiest critic still holds a grudge, even after his investment almost quadrupled.

Sardar Biglari, who began an ultimately unsuccessful campaign to take control of the restaurant chain in 2011, is showing no signs of dropping his now largely symbolic votes against the company’s directors and executive pay, winning little support from fellow investors. His next opportunity comes in November at the annual shareholders’ meeting in Tennessee.

Neither Cracker Barrel nor Biglari responded to requests for comment, but how owner and operator feel about each other is obvious from the war of words they’ve waged in filings and public letters since the activist investor took a 9.7 percent stake in 2011. Biglari is a “historically dissident shareholder” and “a threat” with a “questionable governance track record,” according to Cracker Barrel filings. The company’s board is “disingenuous” and “undertaking a costly, misleading campaign against its largest shareholder,” Biglari said in a presentation last year.

The investor’s Biglari Holdings Inc. had already helped turn around Western Sizzlin Corp. and Steak ’N Shake Inc. by June 2011, when he first disclosed his stake in Lebanon, Tennessee-based Cracker Barrel. Before the year was out, he had slammed the company’s management and demanded a seat on the board. Investors voted him down, and have rejected all of his subsequent attempts.

Mashed Potatoes

The rancor belies the fact Cracker Barrel -- whose comfort food and gift shops are fixtures along U.S. highways in the South -- has returned 284 percent over the past five years. That’s almost triple the gains of the S&P 500 Index during the same time, making it a home run for Biglari, who styles himself as a value investor in the image of Warren Buffett. Since Biglari bought his shares, the 47-year-old company has cut costs, replaced managers and directors and increased dividends. Biglari’s 2015 presentation takes credit for the changes, although analysts aren’t convinced.

“He provided the spark,” Stephen Anderson, who covers Cracker Barrel for New York-based Maxim Group LLC, said. “But it was CEO Sandy Cochran who led the effort.” Cochran became chief executive officer in September 2011. 

Even if Biglari deserves some of the credit, shareholders are better off keeping him at a distance, said Jake Bartlett, an analyst with SunTrust Robinson Humphrey. “His M.O. is to get on the board, take it over and orchestrate a big payment for himself,” Bartlett said.

Investors appear to be reaching the same conclusion. When Biglari, whose holding company bought Maxim magazine two years ago, first tried to join Cracker Barrel’s board in 2011, 23 percent of votes were cast in support. For the third and final time he aimed for a seat, in 2013, only 6 percent backed the attempt. The next year, when Biglari asked shareholders to demand the board immediately pursue all potential sales, only 5 percent voted with him.

Poison Pill

Biglari’s presentation suggested that Cracker Barrel shares would plummet if he sells. Bartlett disagrees. The company has low debt and good cash flow, Bartlett said, adding that it would like to buy back stock to boost earnings-per-share but can’t without triggering a poison pill put in place in April 2012 to thwart Biglari’s takeover efforts, he said.

“I think it would be a good thing if he sold shares,” Bartlett said. “The stock would go up.”

Biglari has argued that the pill is unnecessary: Tennessee law prohibits investors from voting more than 20 percent of shares without approval from other owners.

Compensation Comparison

Cochran was paid $6.6 million for running Cracker Barrel, which had $2.9 billion in revenue last year. Cheesecake Factory Inc., with $2.1 billion of revenue, paid its CEO $5.9 million, and Texas Roadhouse Inc., with $1.8 billion of revenue, paid its chief $8.6 million.

Support for the company’s pay practices has averaged 71 percent during the past five years, thanks largely to Biglari’s stake, which has grown to just under 20 percent. Seven percent of investors voted with him last year. The result was well below the 91 percent average among companies in the S&P 500.

Typically after shareholders register such low levels of support, boards undertake campaigns to elicit thoughts on how to make them happier. But after accounting for the “dissident” votes from Biglari, the company believes there is “considerable shareholder support for its pay practices,” Cracker Barrel said in its Oct. 3 proxy statement. It doesn’t plan to make any changes.

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