Cracker Barrel Amateur Hour

The San Antonio Express-News reported that San Antonio-based Biglari Holdings failed last summer to notify the Justice Department of its intent to initiate an activist approach to investing in Cracker Barrel Old Country Store Inc, as required by law.

Sardar Biglari operates in the exceedingly small financial sandbox of San Antonio, where his firm’s $850,000 Justice Department fine makes news, or for that matter where $10 million in city initiatives constitute a significant portion of local venture capital investments over a three year period.

Does the Biglari fine matter?

It matters mostly to Biglari’s image, something he cares quite a bit about.  This is a businessman who has managed to get every single press mention of himself in recent years to compare him to value investor Warren Buffett.

Nevermind the fact that Warren Buffett has never engaged in hostile, aka activist takeovers, or management shake-ups – Biglari’s preferred investment style.

Biglari, and activist investors like him, seek to acquire enough shares in a target company to demand a board seat, and from that vantage point of power demand changes in management or company direction.  This is the kind of thing explained and exemplified in the popular culture by Michael Douglas’ Gordon Gekko.  Biglari’s fine from the Feds is precisely for not declaring his intent as an activist investor in Cracker Barrel.  Buffett, by contrast, famously only purchases companies in which he already admires and supports management.  Buffett is the opposite of an activist investor.

Also, nevermind the more important point, that a Buffett comparison is best bestowed by the investment world, not claimed by the investor himself.

Biglari’s is the kind of hubris and obfuscation you only can get away with locally in San Antonio, where comparing oneself to Warren Buffett isn’t immediately met with a snort of derision and a rolled eye.  For one thing, people are too polite for that around here.  For another, the wide gap between Biglari’s style and Buffett’s style would be too obvious to anyone from the larger sandboxes of the financial industry to take his self-proclaimed similarities seriously.

Besides just Biglari’s image, does the fine matter to Biglari’s actual business?

It should.  To the extent that a hostile takeover practitioner like Biglari depends on outside capital – as it no doubt does – he needs to credibly present himself as an expert in the field of activist investing, to attract sophisticated capital.  When you miss something as obvious as a regulatory filing – to declare your intent at activist investing – you really are declaring to anyone paying attention that you are not exactly covering all your bases.

This is not necessarily a problem the first time around.  But if I had money with Biglari – I don’t and I don’t plan to – I’d be a lot more skeptical about his claims of expertise as an activist investor as a result of this news.

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