FTC Fines Acquirer $850,000 for Failure to File Under HSR Act for Incremental Purchases of a Public Issuer

Acquirer Alleged to Have Improperly Relied on the Exemption for Acquisitions Made “Solely for the Purpose of Investment”

September 28, 2012

The Federal Trade Commission ("FTC") yesterday fined Biglari Holdings, Inc., a publicly traded diversified holding company ("Biglari"), $850,000 to settle allegations that it violated the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act") in connection with acquisitions of shares of Cracker Barrel Old Country Store, Inc. (“Cracker Barrel”) in June of 2011.  The FTC alleged that Biglari’s incremental acquisitions of Cracker Barrel stock resulted in Biglari’s aggregate holdings of Cracker Barrel exceeding the minimum dollar value reporting threshold (then $66 million) and no exemption from submitting a filing under the HSR Act and observing a waiting period was available. 

Specifically, the FTC alleged that Biglari improperly relied upon the exemption for acquisitions made “solely for the purpose of investment” because, within one week after acquiring shares, Biglari’s Chairman and CEO sought an in-person meeting with Cracker Barrel officers to discuss “ideas to improve shareholder value” and requested that he and another Biglari officer be appointed to the board of directors of Cracker Barrel.  Additionally, though the FTC’s complaint does not state it specifically, Biglari’s holdings included chain restaurants similar to those of Cracker Barrel.

Biglari did make an HSR filing in August of 2011 and observed the required waiting period, prior to making additional acquisitions of Cracker Barrel stock in September of last year.

The FTC’s complaint marks the twelfth (12th) occasion, dating back to 1984, that the U.S. antitrust agencies have sought and obtained fines for improper reliance on the exemption from filing for acquisitions made “solely for the purpose of investment,” and the first since 2004.  The key points of this case are:

  • The U.S. antitrust agencies may consider a party to have an “intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer” sufficient to defeat the “solely for the purpose of investment” exemption, even if actions manifesting those intentions are not taken until after an acquisition is complete.
  • The agencies may still seek fines for failure to file against parties who have never before violated the HSR Act in particularly egregious situations.  Further, the fact that a party files for a future acquisition of shares of the same issuer may not prevent the agencies from seeking a fine.  (Neither the FTC’s press release nor its complaint makes reference to any previous failure of Biglari to file under the HSR Act.)


The HSR Act requires parties to mergers and acquisitions that exceed certain jurisdictional thresholds to make filings with the FTC and the Department of Justice (“DOJ”) and to observe a waiting period before closing.  In this case, Biglari previously held shares of Cracker Barrel, but it was an additional acquisition, when aggregated with current holdings, that gave rise to the filing requirement.

The Commission's press release, which includes a link to the complaint, can be found here.  From the release:

“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.”

Factual Allegations

As stated in the FTC's complaint, Biglari acquired shares of Cracker Barrel in the open market on every day that the market was open between May 24, 2011 and June 13, 2011.  On June 8, 2011, Biglari acquired shares of Cracker Barrel that, when aggregated with its existing holdings of the issuer, resulted in Biglari’s crossing the minimum HSR threshold above which, absent an exemption, a filing was required.

As further alleged in the complaint, on June 14, 2011, the day after the latest acquisition of shares, Sardar Biglari, Chairman and CEO of Biglari Holdings, placed a call to the CEO of Cracker Barrel, and spoke to him the next day.  During a phone conversation, Mr. Biglari stated that he had ideas to improve shareholder value at Cracker Barrel and requested an in-person meeting.  The following week, Mr. Biglari and Phil Cooley, Vice Chairman of Biglari Holdings, met with the CEO and CFO of Cracker Barrel to discuss “ideas to improve traffic at Cracker Barrel.”  At the meeting, Messrs. Biglari and Cooley requested that they be immediately appointed to the board of directors of Cracker Barrel.

In the FTC’s view, “Biglari Holdings’ intent during the June 8 - June 13, 2011 time period that those acquisitions were made included ‘participating in the formulation, determination, or direction of the basic business decisions’ of Cracker Barrel, as evidenced, inter alia, by Mr. Biglari, on June 23, 2011, having requested two seats on Cracker Barrel’s board in a meeting with the CEO and CFO of Cracker Barrel . . . .”

Biglari filed under the HSR Act on August 26, 2011 to acquire further stock of Cracker Barrel, and early termination of the waiting period was granted on September 22, 2011.


The $850,000 fine imposed was almost exactly one-half of the maximum amount for Biglari’s violation of the HSR Act.  Specifically, Biglari was deemed to be in violation of the HSR Act from June 8, 2011, the day of the first acquisition of Cracker Barrel shares that resulted in Biglari’s aggregate holdings exceeding the minimum threshold, to September 22, 2011, the day on which the waiting period applicable to its August 2011 filing was terminated.  The maximum fine would have been approximately $1.71 million ($16,000 per day).

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