Cracker Barrel investors really don’t want what this activist investor sells
You must give credit to activist investor Sardar Biglari for his persistence. As a living embodiment of the adage “if at first you don’t succeed, try again”, the billionaire hedge fund operator once again pleaded Cracker Barrel‘s (NASDAQ: CBRL) shareholders that one of its elected representatives sits on its board of directors. And again, he was rejected.
Since 2011, Biglari Holdings (NYSE: BH) engaged in five proxy battles and four attempts to win a seat on the restaurant chain’s board of directors, but each time those efforts failed.
A failure record
At Cracker Barrel’s annual shareholders meeting last month, Biglari lobbied to elect Raymond Barbrick, co-CEO of The Briad Group, a franchisee of over 100, to the board. Wendy’s (NASDAQ: WEN) restaurants, but also developer and operator of Marriott (NASDAQ: MAR) and Hilton (NYSE: HLT) hotels.
As the board reviewed Barbrick’s appointment, it recommended investors reject him. According to Cracker Barrel, the 10 current board members standing for re-election were approved “by an overwhelming majority.” Over 18.4 million shares were voted on at the meeting, but only 2.4 million were awarded to Barbrick. Notably, Biglari Capital alone owns 2 million shares, or approximately 8.4% of the catering company.
Biglari has tried unsuccessfully over the years to get Cracker Barrel to implement many initiatives, including pay a special dividend up to $ 20 per share and the restaurant’s listing.
While he took credit for getting Cracker Barrel to make changes in its executive ranks and board, and for convincing him to increase his dividend payment 24% to 87% ratio, more than likely, one of the company’s moves came despite its turmoil, rather than because of it.
Departure on a tangent
Not all of Biglari’s criticisms of Cracker Barrel’s management and board of directors have been totally wrong. He pleaded for the restaurant operator to focus on its core Cracker Barrel restaurants and retail stores, and not pursue acquisitions of smaller concepts that won’t significantly move sales or profits.
More recently, he seriously challenged the way he handled his investment in Punch Bowl Social, an 18-store chain of “dinner”-like places. Dave & Buster’s (NASDAQ: PLAY). While Cracker Barrel originally viewed its purchase of a non-controlling stake in that company as a way to “step into a new category with exposure to new customers and demographics,” mainly younger consumers, the pandemic has hammered the economic model of Punch Bowl Social.
Biglari was not a fan of the original deal, but when Cracker Barrel eventually backed down and let Punch Bowl Social collapse into lockdown this year, he also criticized the choice, saying it was “unreasonable that ‘an astonishing 50% -tax revenue has been destroyed by this one-time investment. “
Granted, the coronavirus pandemic played a leading role in the channel’s demise, but Biglari notes that Cracker Barrel investors never received financial data on the concept. He believes management and board rushed to invest in the chain and made an equally rushed exit despite Congress passing the CARES Act stimulus bill just before the ruling.
Go away please
Yet it is clear that years of drama between Cracker Barrel and Biglari soured the opinions of other shareholders on the billionaire investor.
Of course, many were never particularly in love with him in the first place, and one wonders if he managed his own Steak ‘n Shake chain to the best of his other shareholders. For example, Cracker Barrel accused him of failing to pay shareholders a control bonus when he bought the catering company and renamed it Biglari Holdings, and then asked the restaurant to pay him royalties for to have lent his name to the channel.
Cracker Barrel says Biglari has its own history of destroying shareholder value, and claims that even before the pandemic, Bigarli Holdings’ total shareholder return for the previous 10-year period was a 61% loss over own return of Cracker Barrel by 520% for its shareholders over the same period.
There is certainly no love lost between the two sides, and although Biglari has reduced its stake in Cracker Barrel from a maximum of around 20% to its current 8.4%, it does not appear that he is ready to abandon his chimerical campaign.
It also seems just as likely that Biglari Holdings will extend its losing streak, as other shareholders mostly seem to approve of the direction the Cracker Barrel management is taking.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.