DEFC14A: Biglari Capital Launches Proxy Fight for Cracker Barrel Board Seats, Citing Value Destruction

Biglari Capital, a significant shareholder of Cracker Barrel, is seeking to elect three nominees to the board, arguing for changes in capital allocation and strategic direction to enhance shareholder value.

Summary

• Biglari Capital Corp., owning 9.3% of Cracker Barrel's common stock, is soliciting proxies to elect three nominees to the company's Board of Directors at the upcoming annual meeting on November 21, 2024.
• Biglari believes the Board would benefit from directors with experience in capital allocation, store cannibalization assessment, customer traffic analysis, and brand positioning.
• Biglari is nominating Milena Alberti-Perez, Sardar Biglari, and Michael Goodwin and recommends shareholders also vote for seven of Cracker Barrel's nominees: Jody L. Bilney, Gilbert R. Dvila, John Garratt, Cheryl Henry, Julie Masino, Gisel Ruiz and Darryl L. Wade.
• Biglari cites Cracker Barrel's lagging total shareholder return (TSR) compared to peers over various time periods as a key reason for the proxy fight.
• Over a 12-year period (2011-2023), Cracker Barrel spent $1.4 billion on capital expenditures, while annual operating income fell from $167 million in fiscal 2011 to $121 million in fiscal 2023.
• Biglari criticizes Cracker Barrel's strategic transformation plan, which involves spending $600 million to $700 million in capital expenditures over the next three years.
• Biglari also points to the significant dividend reduction as part of the transformation plan, with the quarterly dividend slashed by approximately 90% to an annualized $1 per share.
• Biglari recommends Cracker Barrel divest Maple Street Biscuit, halt new store openings, focus on store-level economics, and return cash to claimholders.
• Biglari intends to vote against the advisory vote on executive compensation and against the approval of the company's shareholder rights agreement.
• Biglari estimates the cost of the proxy solicitation to be approximately $1,300,000.

Sentiment

Score: 3

Explanation: The document expresses a negative sentiment towards Cracker Barrel's current performance and strategic direction, highlighting concerns about value destruction and poor capital allocation. The call for change and the proxy fight itself indicate a lack of confidence in the existing management and board.

Positives

• Biglari's involvement could bring increased scrutiny to Cracker Barrel's capital allocation and strategic decisions.
• The election of Biglari's nominees could lead to a shift in the company's strategic direction, potentially unlocking shareholder value.
• Biglari's focus on store-level economics and returning cash to claimholders could be beneficial for shareholders.

Negatives

• The proxy fight creates uncertainty and potential disruption within Cracker Barrel.
• Biglari's nominees, if elected, would constitute a minority on the Board, limiting their ability to implement significant changes.
• Biglari's recommendations, such as divesting Maple Street Biscuit, may not be in the best long-term interest of the company.
• The significant dividend reduction, while criticized by Biglari, may be necessary to fund the company's strategic transformation plan.

Risks

• Cracker Barrel's strategic transformation plan may not be successful, leading to further value destruction.
• The company's share price could be negatively impacted by the ongoing proxy fight.
• Biglari's nominees may not be able to work effectively with the existing Board members.
• The company's financial performance could continue to decline if the issues identified by Biglari are not addressed.

Future Outlook

Biglari believes that the election of its nominees is an important step in the right direction for enhancing shareholder value at Cracker Barrel. Biglari intends to seek reimbursement from the Company of all expenses it incurs in connection with the solicitation of proxies for the election of the Biglari Nominees to the Board at the Annual Meeting.

Management Comments

• Mr. Biglari discussed a number of topics, including the Company's financial performance, menu, brand strategy, capital allocation, and cost reduction opportunities.
• He emphasized the importance of focusing on core operations and how a turnaround of Cracker Barrel would not require a high capital expenditure program, i.e., a remodeling of the restaurants.
• Mr. Biglari emphasized the importance of divesting Maple Street Biscuit, focusing on core operations, and the need for a shareholder representation on the Board to oversee the Company's capital expenditure plan.

Industry Context

This proxy fight highlights the increasing pressure on restaurant chains to adapt to changing consumer preferences and improve financial performance. Activist investors are becoming more common in the restaurant industry, seeking to influence strategic decisions and unlock shareholder value.

Comparison to Industry Standards

• Cracker Barrel's TSR has significantly lagged behind its proxy peer group, which includes companies like Bloomin' Brands, Brinker International, and Darden Restaurants.
• The proposed capital expenditure plan of $600 million to $700 million over three years is substantial compared to the company's historical spending and could be viewed as risky by some investors.
• The dividend cut is a significant departure from the company's previous policy and could alienate income-seeking investors.

Stakeholder Impact

• Shareholders could see a change in the company's strategic direction and potential for increased value.
• Employees may experience uncertainty due to the potential changes in leadership and strategy.
• Customers may see changes in the company's menu, store format, or overall brand experience.
• Suppliers could be affected by changes in the company's purchasing practices or strategic priorities.
• Creditors may be impacted by changes in the company's financial performance or capital structure.

Next Steps

• Shareholders need to vote on the Biglari Nominees and the Unopposed Company Nominees.
• The outcome of the vote will determine the composition of Cracker Barrel's Board of Directors.
• The Board will need to address the concerns raised by Biglari regarding capital allocation and strategic direction.

Key Dates

Keywords

proxy fight, Biglari Capital, Cracker Barrel, board of directors, shareholder value, capital allocation, strategic transformation, dividend reduction, Maple Street Biscuit, TSR