Buffalo Wild Wings Inc (BWLD): Activist Richard McGuire’s Marcato Capital Demands Sweeping Changes

Richard McGuire‘s Marcato Capital Management recently sent a letter to James Damian, chairman of the Board of Directors of Buffalo Wild Wings Inc (NASDAQ:BWLD) in which it asks for significant change to the composition of the company’s Board and the management of the company, in order to achieve better value for shareholders. Marcato Capital Management, which owns 950,000 common shares of Buffalo Wild Wings (NASDAQ:BWLD) that amass 5.2% of the company’s outstanding stock, started negotiations with the Board two months ago, and hasn’t noticed a lot of progress since, which is why the fund decided to publicly share its analysis of the company’s business, which it had already presented to management in June. Marcato hopes that now, other shareholders will share their opinions on the subject matter after viewing Marcato’s presentation and put further pressure on the company.

Even though the fund is enthusiastic about the future of Buffalo Wild Wings (NASDAQ:BWLD), Mr. McGuire wrote that significant changes in the company’s business practices are necessary for it to achieve its full potential and to attain the best possible shareholder value. Mr. McGuire said that his activist fund’s main focus is on the company’s capital allocation decisions, which they discuss in detail in the presentation (which can be seen through the SEC filing link below), with the fund determining that the company lacks organizational efficiency and suitable analytical support.

Marcato Capital Management asked for the following changes: changes at the Board, including additional independent directors with practical operating experience, should shareholder approve; improvement of the company’s operational quality (food, services, price/value perception, etc.); the ending of its “emerging brands” growth plans (no more taking chances with new restaurant concepts); and a profound increase in urgency, follow-through, and accountability.

Besides the above-mentioned changes, Mr. McGuire added another higher level issue that needs to be articulated: “there is a glaring deficiency of understanding at the Company in how capital deployment relates to shareholder value creation.  Yesterday’s announcement of a $300 million share repurchase authorization further highlights this point, ” he stated.

Buffalo Wild Wings is an owner and franchiser of sports bars and casual dining restaurants. Over the past 12 months, the company’s stock has lost 14.25%. In its financial report for the second quarter of 2016, the company reported earnings per share of $1.27, slightly above the estimates of EPS of $1.26, and revenue of $490.18 million, below the estimates of $498.32 million. Lately, there has been a good deal of analyst ratings activity on Buffalo Wild Wings’ stock; for starters, Jefferies Group reiterated its ‘Hold’ rating on the stock, with a price target of $135 (well below the stock’s current going rate of $168), BMO Capital Markets boosted its price target on the stock to $200 from $161.33 and has an ‘Outperform’ rating, and Deutsche Bank AG also boosted its price target, but to $155 from $145, while keeping its ‘Hold’ rating on it. There were also some downgrades on the stock, coming from Raymond James Financial Inc., which lowered its rating on Buffalo Wild Wings’ stock to ‘Market Perform’ from ‘Outperform’ and Maxim Group, which dropped its rating to ‘Hold’ from ‘Buy’, and has a price target of $170 on it. Finally, Credit Suisse Group AG upgraded its rating to ‘Neutral’ from ‘Underperform’ and raised its price target on the stock to $165 from $130.

You can access the original SEC filing by clicking here.

Ownership Summary Table

Richard Mcguire

Marcato Capital Management

Page 1 of 49 – SEC Filing