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Showdown At Cracker Barrel Final Case Study Essay

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SHOWDOWN AT CRACKER BARREL

FOREWARD

The perspective that will be adopted for the purpose of this case analysis will be that of an institutional shareholder of Cracker Barrel. The final recommendations of this report will focus on the anticipated vote to determine whether or not Sardar Biglari should be allowed to acquire a seat on the board of directors.

CURRENT SITUATION

The aggressive board challenges by Biglari have resulted in defensive moves by the current directors. Biglari has been vocal in his attempt to leverage his 10% stake in the company and desire to join the board of directors. In reaction to this move the board of directors has appointed additional like-minded directors to help move the company forward into an
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Cochran then quickly announced a six-point plan aimed at improving sales and profits and updating their pricing strategy. The market responded favorably to this strategy as the stock price began to rebound from an 18-month low before this announcement. Cracker Barrel’s stock has subsequently increased by over 25% between September and December 2011.

PEER GROUP PERFORMANCE

In determining the investment value of Cracker Barrel, a peer group comparative analysis was completed. Biglari’s comparison of Cracker Barrel to the S&P 500 restaurant index is inaccurate and misleading. The following criteria was used in developing a more accurate peer group for Cracker Barrel:

Only small and mid-cap companies were considered. Cracker barrel is a small-cap restaurant chain with approximately 600 locations, all located within the United States. The S&P 500 Index primarily includes restaurant chains with an international presence, franchised business model, and several thousand locations.

Quick service or fast food restaurants were excluded. Note that although CEC Entertainment and Red Robin were labeled as ‘Quick service’ in the case, we consider these restaurants to be in the ‘casual dining’ and ‘family restaurant’ category and consider them to be quite similar to Cracker Barrel. As such they were included in the peer group.

Small and mid-cap restaurants that were heavily franchised (less than 25% of stores owned by the
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