Cracker Barrel snubbed in stock buy-back effort

Lebanon-based Cracker Barrel Old Country Store, Inc. executives failed in a second attempt to buy back nearly 20 percent of the company’s shares owned by Biglari Holdings, Inc., which owns Steak ’n Shake and Western Sizzlin’ chains. Biglari Holdings is Cracker Barrel&rsqu...
Feb 15, 2013
 Photo: Submitted to The Democrat

Cracker Barrel CEO Sandra B. Cochran

 

Lebanon-based Cracker Barrel Old Country Store, Inc. executives failed in a second attempt to buy back nearly 20 percent of the company’s shares owned by Biglari Holdings, Inc., which owns Steak ’n Shake and Western Sizzlin’ chains.

Biglari Holdings is Cracker Barrel’s largest shareholder with 4.7 million shares worth about $315 million. Cracker Barrel management has previously said it views both chain restaurants owned by Biglari Holdings as competitors.

Sardar Biglari, Biglari Holdings’ chairman and chief executive, responded to Cracker Barrel’s offer with advice in a letter Thursday to board chairman James Bradford Jr.

“The board ought to be preoccupied with optimizing long-term value on a per-share basis, not concerning itself with ‘monetizing’ our stake,” Biglari said in the letter. “By request, I insist that you spend less time on such ineffectual matters and more effort on creating shareholder value through operational improvement and secondarily instituting better capital allocation policies.”

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Lebanon-based Cracker Barrel Old Country Store, Inc. executives failed in a second attempt to buy back nearly 20 percent of the company’s shares owned by Biglari Holdings, Inc., which owns Steak ’n Shake and Western Sizzlin’ chains.

Biglari Holdings is Cracker Barrel’s largest shareholder with 4.7 million shares worth about $315 million. Cracker Barrel management has previously said it views both chain restaurants owned by Biglari Holdings as competitors.

Sardar Biglari, Biglari Holdings’ chairman and chief executive, responded to Cracker Barrel’s offer with advice in a letter Thursday to board chairman James Bradford Jr.

“The board ought to be preoccupied with optimizing long-term value on a per-share basis, not concerning itself with ‘monetizing’ our stake,” Biglari said in the letter. “By request, I insist that you spend less time on such ineffectual matters and more effort on creating shareholder value through operational improvement and secondarily instituting better capital allocation policies.”

The letter was filed with the Securities and Exchange Commission on Friday.

On mid-morning announcements by Cracker Barrel concerning Biglari’s decision not to sell, stock prices jumped to $68.34 – the day’s high and within one point of a 52-week high of $69.30 at early afternoon – but settled for a $1.38 gain at $66.71 during end-of-day trading.

Cracker Barrel management announced it would provide a webcast of its second quarter earnings conference call Feb. 26 at 10 a.m. Company management is expected to discuss financial results for the quarter ending Feb. 1.

The live broadcast of Cracker Barrel's quarterly conference call will be available to the public online in the News and Events section on the company's website at investor.crackerbarrel.com. An online replay will be available at 1 p.m. and continue through March 12.

The Biglari decision comes on the heels of personnel changes at Cracker Barrel’s corporate office in Lebanon. A Feb. 1 email received by The Democrat alleged “termination of key personnel that Cracker Barrel was built upon.” A day earlier, corporate communications senior director Julie Davis announced she was leaving Cracker Barrel for unspecified reasons. It’s unknown whether the two incidents were related.

On Monday, corporate communications manager Jeanne Ludington responded to The Democrat’s request for more information.

“The personnel changes that were brought to your attention in an email were not a reduction in force,” said Jeanne Ludington in an emailed response. “Rather, it involved a small number of personnel and was designed to better position the company for the future. Privacy considerations prevent us from discussing personnel issues in detail.”

Biglari Holdings stock rose $8.01 to end Friday trading at $375.79.

Biglari failed by a wide margin of shareholder votes in his attempts to gain board representation through proxy contests in both 2012 and 2011.

"We are disappointed that Mr. Biglari has rejected our good-faith offer," Sandra B. Cochran, Cracker Barrel’s CEO, said Friday. "We continue to believe it would be in the best interests of the company for Mr. Biglari to exit, avoiding the expense and distraction of a third-proxy fight and allowing us to move forward uninterrupted in the fulfillment of our business plans.  We will continue to focus on delivering excellent results for customers and shareholders."

Biglari said he isn't going away.

“We have one of the longest time horizons in the investment world,” he said in his letter.

Biglari offered another option. He said Cracker Barrel should offer to buy back 20 percent of its outstanding shares or issue a one-time special dividend of $300 million.

“Shareholders deserve a rational capital allocation strategy, one that benefits everyone proportionally,” Biglari said in the letter.

Cracker Barrel shareholders in November supported a shareholders' rights plan to further deter Biglari from placement on the Cracker Barrel board. Cochran has said the plan was “designed to prevent Mr. Biglari from taking creeping control of Cracker Barrel without paying a premium to all shareholders.”

The plan is triggered when a person or group acquires 20 percent or more of Cracker Barrel's stock. If that happened, the plan would give shareholders other than Biglari Holdings the right to buy shares of Cracker Barrel at a discount to their market price. That would have a diluting effect on Biglari Holdings' shares.

Cochran, in a letter mailed to shareholders in November 2011, urged rejection of Biglari's attempt to be nominated to the Cracker Barrel board.

Biglari wrote Cracker Barrel shareholders the week before about his plan to improve the restaurant chain.

Cochran, at the time, called Biglari's attempt to get a seat on the board "highly problematic."

"Sardar Biglari's dealings with us to date, as well as his previous actions as a new member of other boards, lead us to believe that his election to Cracker Barrel's board would result in the alienation of the board and management team, negatively impacting the strategic efforts already underway and eroding shareholder value," Cochran said at the time.

Biglari told shareholders at the time Cracker Barrel has been in "need of a turnaround for many years."

"We believe the combination of a flawed strategy and poor execution has prevented Cracker Barrel's enhancement of value," Biglari said at the time.

Cracker Barrel Old Country Store, Inc., was established in 1969 and operates 621 company-owned locations in 42 states.

 

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