Cracker Barrel whips up appetite in takeover firms

, Bloomberg



Country fried steak and pork chops are among the biggest bargains around for buyers seeking deals in the U.S. restaurant industry.

Cracker Barrel Old Country Store Inc., the owner of namesake restaurants and gift shops, trades for 12.9 times free cash flow, less than 89 percent of U.S. peers valued at more than $1 billion, according to data compiled by Bloomberg. The Lebanon, Tennessee-based company's valuation is lagging behind rivals even after a 38 percent rally since Biglari Holdings Inc. disclosed a stake in 2011 and requested strategy changes.

Cracker Barrel's cash generation is strong enough to spark takeover interest among private-equity firms, who could pay more than $82 a share, according to CL King & Associates Inc. That's 33 percent more than Friday's close. The $1.46 billion company also owns real estate, including stores, corporate headquarters and a motel, that may be valued at more than $1 billion, presenting an opportunity for a buyer to unlock value, said Northcoast Research Holdings LLC.

"Without a doubt, someone could certainly buy them," Gary Bradshaw, a Dallas-based money manager at Hodges Capital Management Inc., which oversees about $750 million including Cracker Barrel shares, said in a telephone interview. "There's a lot of value. They've got a great product. The stock is inexpensive."

Julie Davis, a spokeswoman for Cracker Barrel, declined to comment when asked whether the company would be open to a sale or has held talks with potential buyers.

Cracker Barrel, founded 43 years ago in Tennessee, now runs about 620 combination restaurants and country stores in 42 states, generating $2.58 billion in sales during the fiscal year that ended in August. The menu ranges from chicken and dumplings to smoked ham, while the stores feature rocking chairs, pancake mixes and toys.

Biglari, the San Antonio-based owner of the Steak 'n Shake chain, announced that it had purchased a stake in June 2011, after Cracker Barrel had missed the average profit estimate from analysts for two straight quarters. While shares of Cracker Barrel surged a combined 166 percent in 2009 and 2010, the rally ended last year, with the shares losing 8 percent.

Biglari, run by chairman and chief executive officer Sardar Biglari, criticized Cracker Barrel's management and financial-disclosure practices in a September 2011 letter to other shareholders.

"Our concern over Cracker Barrel's leadership stems from its poor strategy, poor operating performance, poor financial disclosure and lack of ownership, which if left uncorrected, in my view, will lead to poor shareholder returns," Biglari wrote. "The time to act is now."

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