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The Morning Brief: Buffalo Wild Wings Investors Rethink Marcato’s Win

The activist hedge fund firm emerged mostly victorious in its battle with the casual restaurant chain, but the stock slid.

Investors are not exactly celebrating Marcato Capital Management’s mostly successful victory in its proxy fight with Buffalo Wild Wings. Shares of the casual dining chain Monday fell more than 6 percent, to close at $143.05.

Shareholders elected three of Marcato’s four nominees. Separately, the company’s chief executive officer resigned. On Monday UBS reiterated its buy recommendation and $185 price target.

“Following shareholder support for Marcato’s nominees, we anticipate accelerated change across senior leadership, operations, restaurant ownership, and cap structure is likely,” states the investment bank in a note to clients. “While fundamentals remain challenged near-term, we expect the bigger focus will be on turnaround plans and efforts to drive improvements over the coming quarters.”

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Starboard Value said it sold 28 percent of its position in Brink’s and now owns 4.3 percent of the total shares. It has been periodically selling shares of the security company this year. In Monday’s regulatory filing, the activist hedge fund firm headed by Jeffrey Smith says it also has entered into a cash-settled total return swap agreement with Société Générale that gives it economic exposure to 1.456 million notional shares, or about 2.9 percent of the outstanding shares. It explains that the swap provides the Starboard V&O Fund with economic results that are “comparable to the economic results of ownership” but does not provide Starboard with voting power. So, altogether it has control over 7.2 percent of the shares.

In any case, addressing the common shares it recently sold, Starboard said it made the sales mostly to rebalance its portfolio due to the “significant appreciation” in Brink’s stock price since Starboard filed its initial 13D in the company more than two years ago. “Starboard intends to remain a large shareholder,” it adds, and stressed that Peter Feld continues to serve on the board of directors. The activist started investing in the security company in early 2015. In early 2016 Brink’s announced an agreement with Starboard and named three new directors to its nine-member board, including Feld, Starboard’s research director. In addition, Brink’s chairman, president, and CEO Thomas Schievelbein announced his retirement. The stock has been a big winner for Starboard. It was up nearly 40 percent last year and another 58 percent this year.

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Perceptive Advisors disclosed that as of May 24 it owned 845,000 shares of Albireo Pharma, or 8.46 percent of the clinical-stage biopharmaceutical company that is trying to develop drugs that treat orphan pediatric liver disease. The health care-oriented hedge fund did not own any shares of the company as of the end of the first quarter.

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Credit Suisse assumed coverage of hedge fund favorite eBay with an outperform rating, compared with its previous rating of neutral, and established a price target of $44, compared with the previous $34. In a note to clients, it calls the company “an internet value story with several paths to value creation.”

The bank stresses that eBay unit Stubhub’s growth is attractive and its classifieds business “is underappreciated by the Street” based on its comparison with a European company it deems to be very similar. At the end of the first quarter, at least 76 hedge funds held a position in the stock. For example, the stock was the fifth-largest U.S. long of Balyasny Asset Management.

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