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Buffalo Wild Wings’ former activist takes a hit

Marcato Capital, which won a high-profile battle against the chicken wing chain, has reportedly seen its assets plunge, says RB’s The Bottom Line.
Photograph courtesy of Buffalo Wild Wings

the bottom line

Activism doesn’t always pay.

Take Marcato Capital, which has lost 90% of its assets due to poor performance and redemptions from clients, according to the Wall Street Journal. According to the publication, Marcato’s flagship fund lost 42% last year. Another fund lost 20%.

You might recall Marcato from one of the more infamous proxy fights in recent years, involving Buffalo Wild Wings, back in 2017.

The firm is led by Mick McGuire, a protégé of activist investor Bill Ackman who has targeted some of the world’s biggest and best-known restaurant chains over the years.

Marcato invested in Buffalo Wild Wings in 2016, buying up stock after it had fallen into the $140s from a high of more than $200.

It then began an especially aggressive proxy fight. McGuire targeted the company for heavy criticism and said that Buffalo Wild Wings should sell the vast majority of its restaurants to franchisees.

The firm went so far as to call on the company to replace longtime CEO Sally Smith.

Marcato won the fight in 2017, placing three directors on the Buffalo Wild Wings board. Smith quickly announced her retirement.

Investors’ reaction proved to be a real problem. The stock price plunged shortly afterward. And then weakening same-store sales and skyrocketing chicken wing prices kept it down. The stock, which had been trading as high as $170 during the proxy and had settled around $150, fell to as low as $100.

And then in stepped Roark Capital, which bought the chain and combined it with Arby’s to create Inspire Brands.

Roark and Arby’s ended up paying $157 a share for the company. Marcato ultimately backed the deal and made $13.6 million, not including costs associated with the proxy.

It wasn’t a losing bet. But it wasn’t the big win that Marcato likely hoped for when it stepped in and started its campaign in 2016.

The firm likely sensed an opportunity there, with a plunging stock price and weak sales. It did not foresee what would happen: Worsening sales, skyrocketing wing prices and an investment community roiled by the uncertainty of losing a longtime CEO.

That proxy fight is viewed with some derision in the restaurant space. Some critics called Marcato overmatched. Former Panera Bread CEO Ron Shaich has used the proxy as evidence that activist investors take things too far.

“I worry profoundly for the next Sally Smiths, the next generation of CEOs who want to make long-term bets,” he told my colleague Peter Romeo.

I still believe activist investing can be good for companies. Too many of them grow complacent, and there are numerous examples of activists helping to right ships that have gone off course and others where activists light a fire under companies that then perform well.  

Buffalo Wild Wings in 2017 clearly needed to do something different. Marcato simply had the wrong prescription and probably got lucky when Arby’s came in with a buyout offer.

The firm’s subsequent bets did even worse. And now the activist has a turnaround of its own to perform.

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