| Sign on a Buffalo Wild Wings restaurant (David Paul Morris/Bloomberg) |
The continuing food fight between Marcato Capital Management and Buffalo Wild Wings has morphed into a somewhat bizarre battle over what ultimately is the key issue in any activist fight: whether or not management has done a good job for investors.
The source of the latest dispute is a graph contained in Buffalo Wild Wings’ definitive proxy statement, filed late last week, which seems to show that over a recent five-year period, its stock outperformed the Nasdaq composite index and the S&P 600 Restaurant Index. You would think this is a fairly simple calculation and analysis.
However, Marcato takes exception to the calculations. In a press release and regulatory filing late Monday, the activist hedge fund firm headed by Richard (Mick) McGuire III asserts that Buffalo Wild Wings’ stock underperformed the industry benchmark by more than 60 percent over the five-year period.
“This kind of sloppy, self-serving ‘analysis,’ which has gone uncorrected for three full days, including a trading day, is emblematic of what we believe is management’s careless approach to assessment of shareholder value,” states McGuire in the press release. “This is an astronomical error and the fact that we need to point it out should make all shareholders question many arguments management has put forth. For example, how many other mistakes have been made in management’s misguided efforts to preserve the status quo? Where is Board oversight? Who on the Board is proofreading management’s analysis? Where are the advisors? How much value has been destroyed thanks to sloppy ‘analysis’ like this?”
A separate presentation by Buffalo Wild Wings in an amended version of the proxy shows the stock has surged 1,697 percent since its IPO, compared with 329 percent for the restaurant index and 209 percent for the Russell 3000 Index.
“Our record of outstanding performance is compelling,” the company states. “If you invested with us at our IPO, ten years ago, five years ago, three years ago or even just a year ago, you have earned a return that exceeds the median return generated by other casual dining restaurant companies.”
Tuesday morning Buffalo Wild Wings responded to Marcato’s objections, insisting the total return comparison graph (TRCG) used to illustrate its initial claim “is accurate and SEC compliant.”
The company went on to explain that to calculate the return, it retained an experienced third party, Research Data Group, which it calls the largest independent provider of performance graphs for proxy statements and annual reports. It then extols RDG’s credentials, stressing that RDG has more than 1,000 clients and more than half of the Standard & Poor’s 500 stock index. “The TRCG included in the Proxy Statement was provided by RDG based on methodologies that we understand RDG has used throughout its history,” Buffalo Wild Wings explains.
It then detailed RDG’s methodology for subindexes.
Marcato did not officially respond to the company’s response, in effect standing by its earlier analysis and dispute of the facts.
In any case, shares of Buffalo Wild Wings on Tuesday were up a little less than 1 percent, closing at $162.80.
This works out to a gain of more than 18 percent for Marcato, which paid an average price of $138.15 for its 6.1 percent stake.
This saga is far from over.
On Wednesday, Buffalo Wild Wings is scheduled to report quarterly earnings after the market closes. You can be sure there will be a lot of fallout afterward.
