Buffalo Wild Wings (BWLD) announced Friday that its CEO Sally Smith will retire from the wing and beer restaurant company before the end of the year, a major win for activist Marcato Capital's Mick McGuire who also succeeded at installing three of four dissident director candidates to the company's board in a bitterly fought battle that was almost a year in the making.
The chain's share price spiked on the announcement, up to $154.40 a share, a 4.75% hike. Nevertheless, the company's share price is down from the $165.25 a share it was trading at in August after Marcato issued a critical letter to the company's board.
Smith has been at the center of an activist battle waged by McGuire, who had called for her resignation. McGuire will have three dissident director positions on the company's nine person board, including a seat for himself. The combination of Smith's resignation and Marcato's director win suggests that the restaurant chain will soon take some—if not all—of the share-price improvement actions McGuire has been seeking.
McGuire has been pushing Buffalo Wild Wings, which has over 1,220 restaurants, to franchise more of its company-owned stores and fix what he sees as business failures and capital allocation problems. These goals are all key parts of the activist playbook when it comes to pushing up the stock prices of public restaurant chain targets.
McGuire isn't happy with Buffalo Wild Wings 50/50 split between company-owned and franchised locations. He wants to see the company transition to one that has 90% franchised stores. Activists for years have urged restaurant chains to sell company-owned stores to franchisees, with the goal of using the proceeds for debt reduction and capital distributions to shareholders. Marcato has complained about "capital allocation problems," which suggests that he will push the company to use cash from selling company-owned stores for buybacks and dividends.
And significant distributions are already on the agenda. Last year, the company announced a $300 million share repurchase authorization, which it expanded in January to $900 million, a key tactic of companies targeted by activists. Buffalo Wild Wings has taken a few other steps in recent months as part of an effort to appease disgruntled investors in an ultimately unsuccessful effort to head off a Marcato contest.
Nevertheless, the announcements on Friday came after Minneapolis-based Buffalo Wild Wings annual meeting was briefly delayed by the company's chairman, Jerry Rose. It was set to begin at 11 a.m. CT, but was delayed by an hour with no explanation, which suggests that the results may have been close.
A key part of the victory was McGuire's success at getting a seat for himself on the board. Earlier this year, McGuire had offered to settle the contest if Buffalo Wild Wings would agree to add him and one other dissident director too the board. However, Buffalo Wild Wings board director Rose rejected the proposal saying that adding McGuire to the board was "unacceptable," according to Glass Lewis.
The C-Suite and boardroom shuffle also comes after the two major proxy advisory firms split on whether to support Marcato's nominations. Institutional Shareholder Services recommended that investors back three of McGuire's candidates, including Sam Rovit, while Glass Lewis recommended that shareholders support management-backed incumbent directors.
The conclusion of the contest brings to an end an eleven-month public insurgency, which began in July, when McGuire suggested in an activist filing that the company should consider strategic alternatives to improve shareholder value and the fund has been escalating his efforts ever since.
Marcato launched a director-election proxy battle at the company in February, seeking to elect a minority slate of four dissident director candidates. The director battle came after McGuire sent a letter to Buffalo Wild Wings board in August urging the company to bring on "fresh talent" to its board and management team.
McGuire has also highlighted declines in Buffalo Wild Wings' operating performance, including margins and same-store sales, which were in negative territory in all four quarters of 2016. It has also been a critic of the company's repurchase of 113 stores between 2011 and 2015, at a cost that Marcato believes was 50% above replacement cost.
In October, in an ultimately failed attempt at heading off a proxy contest, the restaurant chain installed three new directors, Andre Fernandez, president of CBS Radio, Hal Lawton, senior vice president of North America at eBay, and Harmit Singh, executive vice president and chief financial officer of Levi Strauss.
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Editors' pick: Originally published June 2.