If no sale, investor says company should start buying back shares, including his nearly 20% stake

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Activist investor Sardar Biglari's latest letter to Cracker Barrel management is hardly a Christmas card.

In the letter dated December 24, Biglari continued to push for a sale of the restaurant company, saying he is willing to buy the company himself. However, under Tennessee law, Biglari – who owns nearly 20 percent of the company's shares – is prohibited from making a bid.

"As you are well aware, Tennessee law currently restricts our ability to engage in such a transaction," the letter said. "Thus, we request that the Board support our efforts to seek an amendment to the state law that would give all shareholders the ability to decide the future of their Company."

Biglari continues to argue that current management is not creating enough value for shareholders.

"We believe Cracker Barrel's assets would be far more productive under our leadership than in the hands of present leadership," the letter said. "We think Cracker Barrel's earning power is far too low in your hands. Current management appears relatively successful because of the dismal performance under the former CEO. We firmly believe that neither you nor your management has a deep understanding of how substantial value can be created. It takes an entrepreneurial mind."

Biglari has been rebuffed in his past three attempts to gain seats on the Cracker Barrel board for himself and associate Philip Cooley, yet he has only hinted that he might exit his position in the Lebanon, Tenn.-based restaurant/retail chain.

He holds the shares through entities that he controls, including the San Antonio-based Biglari Capital Corp.; The Lion Fund II L.P.; and Steak 'n Shake Operations Inc., which are all under the umbrella of Biglari Holdings Inc., of which he is CEO.

Biglari has spent much of 2013 trying to profit off the company's stock surge.

The stock price is up about 250 percent since he began buying shares in 2011. It closed Monday at $110.39 – a major jump from the 52-week low of $60.07.

During the Cracker Barrel annual meeting in November, shareholders not only refused to elect Biglari and Cooley to the board, but also rejected a Biglari proposal to declare a one-time special dividend of $20 per share, at a cost of about $476 million. Biglari suggested that Cracker Barrel pay for the dividend by nearly doubling its current debt.

Earlier this year, Cracker Barrel did offer to buy Biglari's stake for $300 million in February, but he refused.

Now, Biglari said an alternative to selling the company would be to begin a massive share repurchase by Cracker Barrel. Biglari said he would now be willing to take part in that program, too.

"If you are confident in your ability, then, alternatively, you should take on leverage and do a share repurchase," the letter said. "We would consider selling our entire position because we would not want to leave our money in your care. The handling of the Duck Dynasty controversy is another example of poor judgment."

In that controversy, company officials first decided to pull merchandise related to the show off store shelves, but relented because of public pressure. One of the stars of the popular cable show was suspended after making controversial statements in a magazine interview.

In the letter, Biglari said he would push for a special shareholders meeting if the company does not take action soon.

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