Food Fight: Biglari Makes Another Run at Cracker Barrel

On Sunday night, it took Boston Red Sox pitcher Ryan Dempster four tries to bean controversial New York Yankee slugger Alex Rodriguez. In this case, the fourth time was the charm.

Two days earlier, Biglari Holdings ( BH) CEO Sardar Biglari commenced his third bid to gain seats on country restaurant chain Cracker Barrel's ( CBRL)board of directors. In this case, Biglari is hoping that the third time will be the charm. He's got an uphill fight; plunking A-Rod was much easier.

Biglari Holdings has not so quietly built a 19.9% stake in Cracker Barrel over the past couple of years. Biglari can't increase it position beyond 20% due to a poison pill adopted by Cracker Barrel. It's not clear what change Sardar Biglari, and additional Biglari Holdings nominee Phil Cooley could effect by being added to Cracker Barrel's board.

Sardar Biglari has been very vocal in his criticism of Cracker Barrel, saying the company spends too much on billboard advertising, doesn't offer its' customers good value for the money, hasn't been transparent enough in its financial disclosures, and has failed to allocate its capital well.

Cracker Barrel has offered to buy back Biglari Holding's stake, which Biglari declined.

Getting elected to Cracker Barrel's board of directors won't be easy, as Biglari has been defeated twice before.

Shareholders may be unlikely to vote for Biglari and Cooley for one simple reason; stock performance. Cracker Barrel shares -- which have risen 60% year to date and more than 160% over the past two years -- have recently breached the $100 mark, an all-time high. Perhaps they are worth much more. Biglari, who turned around fast-food chain Steak n Shake, which is owned by Biglari Holdings, has some ideas on how to extract even greater value, but that may be a difficult argument to make to satisfied shareholders. CBRL Chart CBRL data by YCharts

Biglari's abrasive nature has done little to enamor him with Cracker Barrel shareholders, either. If he somehow is elected, I'd like to be a fly on the wall at those board meetings. It would be a clash of cultures at the very least.

As a Biglari Holdings shareholder, I've been impressed with Sardar Biglari's ability to fix Steak n Shake and with his intelligence, but that has not yet translated into substantial rewards for shareholders. Biglari Holdings shares are up just 14 % in the past year, and 40% over the past two years, but that includes Cracker Barrel's stellar run over the same periods.

Keep in mind that Biglari Holdings owns $472 million worth of Cracker Barrel, and yet its own market cap is just $585 million, excluding Biglari Holdings shares owned by company-controlled entities, and so I would have expected better performance from the stock. But the stock is not well known, trades for more than $440 a share, and has limited volume. BH Chart BH data by YCharts

Biglari's latest attempt to get on Cracker Barrel's board should make for some interesting press, but there's a lot more happening at Biglari Holding's these days. The company just commenced a rights offering, which will give shareholders one right for each share owned. For every five rights, shareholders can purchase an additional share of Biglari Holdings for $265, about 40% below the current share price.

The offering could raise up to $75 million for the company. It's unclear how the proceeds will be used, though it won't be used to buy more Cracker Barrel, that's for sure.

Stay tuned, this story is likely to get even more interesting.

At the time of publication, the author was long Biglari Holdings.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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