Buffalo Wild Wings, Marcato proxy battle heats up as both try to woo shareholders

Key Points
  • Both Buffalo Wild Wings and hedge fund Marcato wrote letters to shareholders Tuesday ahead of a proxy vote on June 2.
  • B-Dubs called Marcato's proposed shakeup "risky and unnecessary."
  • Marcato said Buffalo Wild Wings' lackluster earnings were further proof that the company needs new leadership.
Inside a Buffalo Wild Wings location.
Source: Buffalo Wild Wings

The battle over Buffalo Wild Wings intensified Tuesday with the company and hedge fund Marcato sending letters to shareholders touting their competing slate of directors ahead of next month's showdown vote.

The chicken wing chain asked shareholders to vote their yellow proxy card with their lineup of directors before the company's annual shareholders meeting on June 2.

Share prices were down slightly on Tuesday.

The company's slate includes one of Marcato's nominees, Sam Rovit, who has 20 years of experience in the food service industry, as well as Janice Fields, who served as executive vice president and chief operating officer of McDonald's U.S. operations from 2006 to 2010.

Buffalo Wild Wings said in March that James Damian, who had previously served as board chairman, and Michael Johnson will retire from the board at the annual meeting.

Buffalo Wild Wings called Marcato's proposed shakeup, which would add the hedge fund's founder Mick McGuire and three others directors to the board "risky and unnecessary." The letter was drafted by its three newest board members, Andre Fernandez, Harry Lawton, and Harmit Singh, who joined on in October.

"With substantial work underway, we do not believe now is the time to further shift the Board's composition — emptying the Boardroom of all institutional knowledge — or radically modify the company's mandate or strategy, as Marcato would have you do," the directors wrote. "We do not believe Marcato's suggestions — its Board candidates (other than Sam Rovit), operations or strategy — would be effective in creating shareholder value at Buffalo Wild Wings."

In Marcato's letter to shareholders, McGuire argued that B-Dubs' most recent weaker-than-expected earnings report was proof that the company needs new leadership. Last month, Marcato, which owns a 6.1 percent stake, called for Buffalo Wild Wings CEO Sally Smith to resign.

"After Buffalo Wild Wings' management team and board repeatedly refused to engage in productive discussions with us regarding these opportunities, the Company — once again — delivered disappointing financial results for the first quarter of 2017," McGuire wrote.

"To add insult to injury, these poor results were the consequence of desperate actions by management to report positive sales in the short-term by discounting the Company's most important and costly product: wings," he said. "If nothing else, these results revealed that the management team and incumbent directors have no long-term strategic plan to create value for you — the owners of Buffalo Wild Wings."

Marcato urged shareholders to vote a white proxy card to support their slate.

The activist investors began pushing for Buffalo Wild Wings to refranchise more of its restaurants last July. But tensions between the two sides worsened throughout the winter, and then in March, Marcato called for Smith's resignation.

The hedge fund has argued the executives' interests aren't closely aligned with the chain's shareholders since none of the executives owns shares, and only one director has ever executed an open-market purchase of the stock. Further, he said, management has been using equity incentive plans to purchase shares at a lower price and then sell them on the market to make cash.

Buffalo Wild Wings has defended its management, saying the team has helped generate huge returns for shareholders and it plans to refranchise some of its restaurants.

"The company is working hard for shareholders in addressing changing market conditions and consumer preferences," Buffalo Wild Wings' three new directors wrote Tuesday. "The efforts are broad-based and comprehensive, and we can assure you that our slate of directors is the team that will drive success and value."