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Cracker Barrel Fight: Biglari Holdings Ups the Ante

Tickers in this article: BH CBRL
NEW YORK (TheStreet) -- The world of activist investing has long fascinated me, even more so when stocks that I have exposure to are involved. One of the more interesting situations that continues to develop is the Cracker Barrel - Biglari Holdings saga saga.

I've long been a Cracker Barrel fan, both the food and the stock. Although the restaurant chain has been around for decades, it remains one of the more interesting restaurant concepts, and I've always enjoyed the food and atmosphere. I no longer own the stock directly, but rather through my position in Biglari Holdings, which owns about 20% of Cracker Barrel. I saw this as a less expensive way to get exposure to Cracker Barrel, although that has not paid off nearly as well as owning Cracker Barrel shares directly. CBRL ChartCBRL data by YCharts
BH ChartBH data by YCharts

Biglari Holdings CEO Sardar Biglari likes Cracker Barrel too, enough to purchase one fifth of the company over a few years, yet he is at odds with management and believes that the company can do much better with his influence. Due to a poison pill adopted by Cracker Barrel, he simply cannot grow his position beyond 20%, but is trying to effect change via a third attempt to gain seats on the board of directors, and other, more recent "suggestions".

Two weeks ago, Biglari sent another letter to Cracker Barrel shareholders, laying out his vision for the company. In it, he told fellow owners that "Without any question, Cracker Barrel is an A+ brand, but in our view, it has not achieved A+ performance because the board lacks entrepreneurial talent." Never one to pull punches, Biglari goes on to tout one of the ideas he has shared with Cracker Barrel's board, that the company should expand its debt level in order to pay a $20 special cash dividend to shareholders.

I am not typically a fan of piling on debt, in this case too, but Biglari makes the argument that this would improve Cracker Barrel's capital structure; that this is a perfect environment to lever up given low interest rates, and that paying the special dividend is a better use of cash than opening new stores, because Biglari believes the companies returns on capital for new stores are subpar.