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    Cracker Barrel Old Country Store and Restaurant, which serves up comfort food, has returned 284 percent to investors over the past five years.
October 16, 2016 1:01 AM

Restaurant, investor at odds

Chain's 284% return not good enough

Caleb Melby | Bloomberg

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 Cracker Barrel, based in Lebanon, Tennessee. 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.

The rancor belies the fact Cracker Barrel – whose comfort food and gift shops are fixtures along U.S. highways in the South and Midwest – has returned 284 percent over the past five years. That’s almost triple the gains of the S&P 500 Index over that period, 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,” said Stephen Anderson, who covers Cracker Barrel for Maxim Group. “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.

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

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.