Activist Marcato Turns Up Heat On Buffalo Wild Wings

Feb 22 2017 | 2:32pm ET

By Michael Flaherty (Reuters) - Activist investor Marcato Capital Management has ratcheted up its attack against Buffalo Wild Wings, seizing on the restaurant chain's weak earnings as further evidence to support the fund's goal of overhauling its strategy and board.

Buffalo Wild Wings is failing to deliver on its promise of 20 percent profit margins, international expansion and technology upgrade, Marcato says in a new 51-page slide presentation, headlined "over-promising and under-delivering," to be publicly released on Wednesday.

Marcato officially launched a proxy fight against the company earlier this month, nominating four directors for its nine-member board on Feb. 6. The next day, the company reported disappointing earnings.

"Rather than articulating any real plan to address the weakness, they instead put forth rosy views that they plan to fix everything, but with no timeline, no numbers," Marcato founder and Chief Executive Officer Mick McGuire told Reuters.

The activist investor and the company have clashed since Marcato disclosed its stake of more than 5 percent last July.

Minneapolis-based Buffalo Wild Wings' stock has slid to $158.20 on Tuesday from $190 two years ago and has a market value of around $2.8 billion.

One of Marcato's original critiques was that Buffalo Wild Wings did not franchise out enough restaurants, and the San Francisco-based fund is pushing for a 90 percent franchisee model. The franchisee versus company-owned restaurant ratio is currently around 50-50, and the company has said the chain actively seeks out new franchisees.

In Marcato's slide presentation, expected on Wednesday, it repeats its concerns about the board's lack of experience in the restaurant industry and casts doubt on Buffalo Wild Wings' ability to reach key targets.

Marcato said the company has been unwilling to provide details on a timeline and how it would reach its stated promise of achieving 20 percent profit margins by 2018.

Morgan Stanley also cast doubt on that goal.

"While the company's margin goal ... remains in place, the achievability of this goal appears less certain near-term," the investment bank said in a research note after the results were released, citing challenges around the company's same-store sales expectations and a rise in raw chicken wing prices.

Buffalo Wild Wings' annual meeting is expected in May.

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