On the Margin
Buffalo Wild Wings, facing an activist, adds to its board

Buffalo Wild Wings, facing an activist, adds to its board

This post is part of the On the Margin blog.

Is Buffalo Wild Wings gearing up for a proxy fight against Marcato Capital Management? It sure seems like it.

The Minneapolis-based chicken wing chain announced Tuesday that it has appointed three new board members: Andre Fernandez, president of CBS Radio; Hal Lawton, senior vice president of North America at eBay Inc.; and Harmit Singh, CFO of Levi Strauss & Co.

In the process, board members Dale Applequist and Warren Mack are retiring from the board, and the company is increasing the size of its board of directors from eight members to nine.

It’s possible, of course, that this is a simple addition of new board members. Buffalo Wild Wings CEO Sally Smith called the new directors “highly respected leaders with key expertise, strong values and significant financial acumen.”

Yet it comes as Buffalo Wild Wings faces a tough activist in Marcato. The activist, which owns 5.2 percent of the company’s shares, has released multiple presentations and letters that have been highly critical of the company’s current strategy — especially as it acquires restaurants from franchisees.

In a filing in August, Marcato said that, “it would be inappropriate” for the board to appoint new members “outside of an annual meeting without considerable consultation with its major shareholders, including Marcato.”

The investor also said, “it is willing to offer a senior Marcato executive to serve on the board to ensure the proper implementation of best practices in areas such as capital allocation, management incentive compensation and succession planning.”

Suffice it to say, none of the three Buffalo Wild Wings appointees are Marcato executives, suggesting that the chain apparently has no taste for such a move. It could also be a signal from the company to shareholders that it is making changes without going so far as to bring an activist on board.

Indeed, on Tuesday afternoon, Marcato criticized the appointments, saying the new members lack restaurant operations and franchise experience.

“After attempting to engage in substantive dialogue with Buffalo Wild Wings for months, we are deeply disappointed by the company’s unilateral decision to reconstitute its board without consulting us or other outside shareholders,” the activist said in a statement. “Rather than working collaboratively with its investors, Buffalo Wild Wings has opted to exercise poor judgment, taking entrenching actions to create the illusion of change without showing any real openness to new voices and desperately new ideas.”

Marcato also said the board “lacks a sufficient level of restaurant operations and franchise system development expertise and would benefit further by adding shareholder representatives.”

The appointments, and Marcato’s reaction, increase the likelihood that Marcato will start a proxy fight in its bid for major changes at Buffalo Wild Wings.

Jonathan Maze, Nation's Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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