Coverage: New directors at BW3 fails to appease activist investor

Sports bar chain Buffalo Wild Wings has added three outside board members amid pressure from an activist shareholder.

Austen Hufford of The Wall Street Journal had the news:

The chicken-wing restaurant operator said directors Dale Applequist and Warren Mack were resigning immediately, advancing their planned retirements.

Marcato Capital Management LP, which has a 5.2% stake in Buffalo Wild Wings, said later Tuesday that it was deeply disappointed by the restaurant chain’s decision to make the changes without consulting the activist investor or other stockholders.

Marcato said publicly in August that it is seeking substantial changes at the chain, including the addition of new management and improvements in food quality and service.

On Tuesday, the San Francisco investment manager stated that even with the director changes, the Buffalo Wild Wings board lacks sufficient restaurant-operations and franchise-system development expertise. Marcato said the board also would benefit by adding “shareholder representatives.”

Mike Hughlett of the Minneapolis Star Tribune notes the restaurant chain’s growth has slowed:

Under Smith, Buffalo Wild Wings has been one of the most successful U.S. restaurant chains over the past decade, growing its sales and profits at a steady clip. But the company, which has about 1,200 chicken wing-and-sports themed restaurants worldwide, began to falter over the last year, its sales growth slowing and its stock price weakening.

Wild Wings’ stock closed Tuesday at $138.61 share, up 62 cents. The shares were trading over $180 a year ago.

Marcato bought its stake in Wild Wings in July, and a month later sent a missive to directors calling for major strategic changes, and asking for a “profound increase in urgency, follow-through and accountability.” Wild Wings’ growth objectives had become muddled, the letter said, and “fresh talent was needed at the Board and management levels.”

Last week, McGuire said Wild Wings should move to a more heavily franchised business model. Now, Wild Wings’ restaurants are about 50 percent franchised and half company-owned; McGuire wants a 90-to-10 percent franchised-to-owned ratio.

Michael Flaherty of Reuters notes that Marcato could nominate its own directors next year:

Marcato, founded by ex-Pershing Square Partner Mick McGuire, also has said the company should franchise out more of its restaurants.

Marcato could launch a proxy fight in early 2017 by nominating its own directors, if friction between the two sides continues. Buffalo Wild Wings’ director nomination window will likely run from early January to early February, based on last year’s proxy. Its annual meeting is usually held in May.

McGuire said in an interview last week that Buffalo Wild Wings’ management had not been as receptive to Marcato’s plans “as we would like” and repeated his view that the company’s shares could triple over a four-year span.

Buffalo Wild Wings said on Tuesday that two existing board members would step down from their positions effective immediately.