Biglari Holdings, Inc., to Pay $850,000 Penalty to Resolve FTC Allegations That it Violated U.S. Premerger Notification Requirements

Biglari Holdings, Inc., a publicly traded holding company, has agreed to pay $850,000 to resolve Federal Trade Commission allegations that it violated premerger reporting laws in connection with its 2011 acquisition of a stake in the restaurant operator Cracker Barrel Old Country Store, Inc.

At the request of the FTC, the U.S. Department of Justice has filed a complaint for civil penalties, alleging that Biglari improperly failed to report the transaction to U.S. antitrust authorities by claiming the purchases were a “passive” investment when, in reality, Biglari intended to become actively involved in the management of Cracker Barrel. 

The Hart-Scott-Rodino (HSR) Act requires that parties notify the FTC and the Department of Justice of most large transactions that affect commerce in the United States.  After submitting this notification, parties must observe a waiting period before closing their transaction while one of the two agencies determines whether the transaction may result in a substantial lessening of competition.

“Premerger notification requirements are critical to competition and consumers, and the FTC expects parties to comply with them,” said Chairman Jon Leibowitz.  “The passive investment exemption is a narrow one, and we will not hesitate to seek civil penalties against companies that try to abuse it.”

The Hart-Scott-Rodino Act contains an exemption for acquisitions of up to ten percent of voting securities if the acquisition is made solely for the purpose of investment.  The HSR Rules state that such transactions are exempt from premerger filings, if “the person holding or acquiring such voting securities has no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer.”  However, if the buyer intends to be actively involved in the management of the acquired asset, the exemption does not apply and an HSR filing may be required.

According to the complaint, in May and June 2011, Biglari Holdings acquired approximately 8.7 percent of the outstanding voting securities of Cracker Barrel.  On June 8, 2011, Biglari Holdings exceeded the then-$66 million threshold for HSR filings, and continued to acquire additional voting securities through June 13, 2011.  The complaint alleges that, at the time of its acquisitions, Biglari Holdings intended to actively participate in the management of Cracker Barrel, including seeking a seat on the company’s board of directors.  As a result, Biglari Holdings was ineligible for the passive investor exemption and was required to submit an HSR notification before acquiring shares of Cracker Barrel in excess of $66 million.

The Department of Justice filed the complaint on behalf of the Commission in the U.S. District Court for the District of Columbia on September 25, 2012.  The Commission vote to refer the complaint and proposed settlement to the DOJ for filing was 5-0.

NOTE:  The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the defendant has actually violated the law.  This agreed-to judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation.  Final/judgments have the force of law when signed by the District Court judge.

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