On the Margin
Buffalo Wild Wings opened its newdesign prototype this week at a new location in Cincinnati

Buffalo Wild Wings is taking pages out of activist’s playbook

Blog: Yesterday, the chain nominated one of Marcato’s nominees to its board; now it wants to refranchise

This post is part of the On the Margin blog.

Buffalo Wild Wings Inc. sure seems to be taking some of the suggestions of its activist investor to heart. 

The latest example came on Tuesday, when the Minneapolis-based chicken wing chain said it had hired The Cypress Group to sell 10 percent of company-owned restaurants to franchisees.

Marcato Capital Management, which owns 5.6 percent of Buffalo Wild Wings stock, has been pushing the company to sell off some of its 631 company-owned locations to operators for months.

This isn’t the only example. Last October, after Marcato began turning up the heat in its criticism of the company, Buffalo Wild Wings added three new members to its board of directors. That addressed one concern from the activist, which at one point said the board and management needed “fresh blood.”

This week, Marcato nominated two people with food industry experience to its board — which had been one of the investor’s primary criticisms of the company. One nominee was Janice Fields, former McDonald’s USA president. The other was Sam Rovit, CEO of food maker CTI Foods.

Rovit, as it happens, had already been nominated for a board seat — by Marcato. 

Meanwhile, Marcato’s October presentation included an argument that Buffalo Wild Wings should franchise more of its restaurants. The evidence the investor used to bolster its argument came from … The Cypress Group.

That matter was not lost on the investor. “It’s ironic that, despite spending the last nine months resisting all of Marcato’s suggestions for financial and operational improvements, Buffalo Wild Wings has now chosen to engage The Cypress Group in its so-called ‘portfolio optimization’ process,” the firm said in a statement. 

To be sure, it’s hardly a shocker that Buffalo Wild Wings would retain The Cypress Group. The investment banker has become something of a go-to source for large restaurant chains that want to sell locations to franchisees. Noodles & Company, for instance, hired Cypress just last month. 

On top of that, Buffalo Wild Wings’ refranchising strategy at this point is far from an earth-shattering change. At 10 percent, Cypress would handle the sale of just over 60 locations.

Still, it’s evident that Buffalo Wild Wings is quietly taking pages from Marcato’s playbook in its fight against the activist, owner of 5.6 percent of the company’s shares, who has nominated four people to its board. 

The board’s two new nominees will mean that at least five of the board’s nine members will be newly appointed once shareholders vote. And the refranchising is a shift away from the company’s previous strategy, which largely concentrated on acquiring restaurants from franchisees. 

“We anticipate engaging with successful, committed franchisees with the desire, experience and financial ability to build our brand and further strengthen the Buffalo Wild Wings system,” CEO Sally Smith said in a statement.

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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