Buffalo Wild Wings Inc. franchisees are taking the company’s side in its fight against an activist investor, saying management has their full support.
Franchise Business Services, which represents operators of the 1,200-unit chicken wing chain, questioned activist investor Marcato Capital Management’s proposal to franchise 90 percent of Buffalo Wild Wings restaurants in a two-year period.
“As with any business, there are always improvements to be made, and we are working tirelessly with management to do so,” Wray Hutchinson, chairman of FBS’s board of directors and a 39-unit operator, said in a statement.
“However, while we appreciate Marcato Capital’s investment in the business, we believe their proposed 90-percent franchised model is heavily flawed,” Hutchinson said. “Under this proposal, there would no longer be an appropriate overall alignment of interests between the franchisor and the franchisee community, damaging the value we have worked so hard together to create.”
Marcato, which owns 10 percent of Buffalo Wild Wings’ stock, has nominated four people to the company’s board of directors, one of whom Buffalo Wild Wings has endorsed.
If Marcato wins, the activist would get major say in how Buffalo Wild Wings is operated. Marcato has called for two major changes: to sell off most of the 634 company-owned restaurants to franchisees, and for Buffalo Wild Wings CEO Sally Smith to resign.
“The issues the company faces would probably benefit from leadership expertise both in turning around and improving operations of restaurant businesses, but also one that has more experience growing and building a more highly franchised system,” Marcato managing partner Mick McGuire said on CNBC last week.
But franchisees backed Smith, her management team and Buffalo Wild Wings’ board of directors.
“We continue to work with the Buffalo Wild Wings management team to enhance the guest experience and drive store profitability across its company-owned and franchised locations,” Hutchinson said. “This includes our collaborative focus on loyalty, order and pay at the table, merchant acquirer and EMV compliance, reduction of remodel costs, launch of a system-wide food safety program, food innovation, online ordering and delivery services.”
Marcato has taken its case not just to shareholders and the company, but also to franchisees, which it said would be beneficiaries in a more franchise-focused system.
“We believe the path that creates the most value for both franchisees and the franchisor is a strong, franchised-based system in which the corporate franchisor is focused on maximizing the value of the BWW brand and empowering franchisees with the tools to profitably grow their businesses,” McGuire said in a December letter to operators.
The proxy fight is expected to be resolved at Buffalo Wild Wings’ annual meeting on Friday.
Two of three proxy advisory firms, Institutional Shareholder Services and Egan Jones, have endorsed at least three of Marcato’s four nominees for the board. The third, Glass Lewis, gave its full endorsement to Buffalo Wild Wings.
Institutional shareholders that hold much of a company’s shares frequently listen to such recommendations, meaning their endorsements can hold major sway in a proxy fight.
Marcato argued that Buffalo Wild Wings has underperformed its peers in recent years, in terms of sales and profits, and requires major changes at the board and management levels.
Buffalo Wild Wings, however, said it has been making changes at the company and in its operations, and argued that Marcato would get rid of all of the board’s more experienced directors.
Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze