Activist shareholder Sardar Biglari is pressing Cracker Barrel Old Country Store Inc. to issue a special dividend of $20 a share, he said in a letter to the company’s board released Tuesday.

The chairman of San Antonio-based Biglari Holdings Inc., which owns the Steak ‘n Shake and Western Sizzlin brands and whose affiliates hold nearly 20 percent of Cracker Barrel’s shares, said he intends to call a special meeting of shareholders to vote on his dividend proposal.

Lebanon, Tenn.-based Cracker Barrel, which last month said it would not support Biglari’s third bid for representation on company’s board, said in a statement that it would respond to Biglari’s letter “in due course.”

The family-dining company is scheduled to release its earnings for the fourth quarter ended Aug. 2 on Wednesday morning.

“Cracker Barrel has kept its powder dry in hopes of eventually purchasing Biglari's CBRL stock,” said Christopher O’Cull, an analyst with KeyBank Capital Markets, in a note Tuesday. Earlier this year, the company attempted to repurchase his stock for $65 a share, or a deal worth more than $300 million.

“Biglari declined the offer, deciding to fight a third consecutive proxy battle instead,” O’Cull wrote. “We could see the board agreeing to pay a small special dividend, but we would not expect it to use all its debt capacity, preventing it from potentially repurchasing the activist's stock in the future.”

Biglari in his most recent letter also criticized the board’s rejection of the nomination of himself and Philip Cooley, vice chairman of Biglari Holdings, for seats on the board. They had sought Cracker Barrel seats in 2011 and 2012 proxy fights, but were rejected by shareholders.

“We will not wait while the board continues to dillydally with our shareholder plan,” Biglari wrote. “Our next step is to call a special meeting of Cracker Barrel’s shareholders, which will give all owners the opportunity to vote on the special dividend.”

He continued, “As you know, 20 percent of the ownership has the ability to demand a special meeting. As the lead investor in the company, we plan to lead shareholders to more wealth creation.”

Biglari also noted that Cracker Barrel had “amassed $58.5 million of cash and cash equivalents” as of May 3 and long-term debt had been reduced to $400 million from $525 million at the beginning of the year.

“In our view,” Biglari said, “Cracker Barrel is presently capitalized over-conservatively.” He advised against using the cash to open new stores or to accumulate more reserves or to repay debt, calling such moves “asinine.”

Biglari also said the company should not use cash to repay debt. “The company should lever up judiciously in order to take advantage of low interest rates,” he wrote, “not de-lever when it holds over a billion dollars in real estate value.”

He added, in footnotes, that Cracker Barrel “twice in the past year” offered to buy Biglari Holdings and its affiliates’ shares in a deal estimated at $305 million at the time the offer was made.

“With these funds alone,” Biglari said, “Cracker Barrel could have paid nearly a $13 per share special dividend that would have benefited allshareholders proportionately.”

Cracker Barrel owns and operates 624 locations in 42 states.

Contact Ron Ruggless at ronald.ruggless@penton.com.
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