The Morning Brief: Marcato’s McGuire Scorches Buffalo Wild Wings

Marcato Capital Management’s Richard (Mick) McGuire III is turning up the heat on Buffalo Wild Wings. In a letter fired off to the chairman of the casual dining chain, the activist called on the company to make “substantial changes to its business practices” and to its board and management team. McGuire pointed out that no current director has restaurant operating experience.

“The company must improve in key operational areas such as food quality, price/value perception, speed of service, technology implementation, food-cost optimization, and labor engineering — all areas where it is substantially underperforming its potential, and, that if improved, can drastically help restore the company’s customer value proposition,” wrote McGuire, whose San Francisco firm owns 5.2 percent of the stock. “Efforts to drive ‘growth’ primarily through new unit openings and franchisee acquisitions currently take unwarranted precedence over maximizing same-store sales and restaurant-level margin opportunities at core Buffalo Wild Wings.”

Buffalo Wild Wings responded in a statement that it is committed to acting in the best interests of the company and all of its shareholders and welcomes communications with shareholders. “Members of our board and management team, as well as our outside advisors, have met with and spoken to Marcato numerous times since learning of its investment,” the company added. “Our board and management team will continue to engage constructively with Marcato and we will also consider the input of our other shareholders. Buffalo Wild Wings is committed to executing the company’s strategy and creating value for all shareholders.” Interestingly, on Wednesday morning Deutsche Bank raised its price target on the stock from $145 to $155, citing an investor meeting at the company the previous day. However, there is no mention of Marcato’s involvement, suggesting the report was written before the filing was made. Shares of Buffalo Wild Wings jumped nearly 3 percent, to close at $166.06.


Shares of Valeant Pharmaceuticals International surged nearly 13 percent to close at $29.98 after Morgan Stanley raised its rating on the stock from equal weight to overweight and boosted its price target from $33 to $42. In a report to clients on Wednesday, the bank conceded that the drug maker still faces risks, but that it finds the upside attractive. “Risk of severe financial stress should diminish as covenants are renegotiated and VRX pays down debt, and deleveraging should drive equity value accretion,” it added. Morgan Stanley elaborated that it became more upbeat on Valeant following the company’s second-quarter earnings call, noting it now sees a clearer vision under new CEO Joe Papa. It is confident management will successfully renegotiate debt covenants and improve income and cash flow and pay down debt. “As the company delevers, this can drive significant equity value accretion,” Morgan Stanley noted.


Tiger Global Management participated in the $175 million fundraising round for Indian messaging app Hike. The round was led by Tencent Holdings, the Chinese Internet giant and Taiwanese electronics company Foxconn Technology Group, according to the Wall Street Journal. This appears to be Tiger Global’s first private investment in the third quarter. In 2014 Tiger Global led Hike’s $65 million financing round.


Third Point’s Daniel Loeb disclosed that he was granted 470 shares of Sotheby’s as part of his compensation for serving as a director of the New York-based auction house. Loeb was entitled to receive $18,750 in compensation and chose to receive the value in the form of common stock, according to a regulatory filing. The shares were granted at $39.89 per share. Altogether, the New York hedge fund owns 12.1 percent of the auctioneer.