A leading advisor to large investors is recommending that they withhold their votes for a Cracker Barrel Old Country Store director being targeted by activist investor Sardar Biglari but has stopped short of backing Biglari’s nominee.

In a recent report, Institutional Shareholder Services (ISS) governance analysts say Biglari — who has previously fought four unsuccessful proxy contests with Lebanon-based Cracker Barrel — is onto something with his push to replace former Clarcor Chairman and CEO Norm Johnson, who has been on the Cracker Barrel board since 2012. But his timing of doing so during the COVID-19 pandemic, which led Cracker Barrel to abandon a $133 million investment in eatertainment concept Punch Bowl Social after only a few months, is working against him.

“Despite being incorrect about the necessity for change in the past, the dissident has identified an issue that will need to be addressed, and has likewise presented a credible nominee,” the ISS team wrote. “However, the need to address the issue is not so urgent that it must be done at this juncture, nor is the dissident's nominee so compelling that he must be added immediately. As such, a case for immediate change has not been made.”

ISS is recommending investors back Cracker Barrel’s other board members but stop short of endorsing Johnson for another term. The Punch Bowl Social project, they said, has exposed the need for more restaurant brand management expertise to go with the marketing-first knowledge of recent board additions — particularly on the heels of the company acquiring Maple Street Biscuit Company, launching alcohol sales at its restaurants and pushing through other changes.

“Shareholders should consider whether recent additions impart the expertise necessary to maximize the value of CBRL's new undertakings, which pull at so many of the fibers that define a restaurant concept, and to provide oversight that can guide management's strategic thinking through a period of self-examination and change,” they wrote.

Not surprisingly, both sides in the proxy battle seized on the various parts of ISS’ report to bolster their case ahead of next Thursday shareholders’ meeting. Cracker Barrel — which also has received full backing from fellow proxy advisory firm Glass Lewis —  said the board “is the right one to continue our long-track record of shareholder value creation." In contrast, Biglari, who controls 8.7 percent of the company’s shares, pointed to ISS’ conclusion on the need for longer-term board changes.

Biglari is Cracker Barrel’s third-largest investor, behind industry titans BlackRock and The Vanguard Group, which collective own more than 21 percent of the company. Cracker Barrel shares (Ticker: CBRL) were up nearly 2 percent to $129.29 in Friday-afternoon trading. They began the year around $155 and fell to a 52-week low below $55 in March. At their current levels, they are up only slightly over a five-year span.

This post originally appeared in our partner publication, the Nashville Post

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