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Hedge fund Marcato takes stake in Buffalo Wild Wings

Published 07/25/2016, 03:52 PM
Hedge fund Marcato takes stake in Buffalo Wild Wings

By Svea Herbst-Bayliss

BOSTON (Reuters) - Activist hedge fund Marcato Capital Management said on Monday it had acquired a 5.1 percent stake in casual restaurant chain Buffalo Wild Wings, sending the company's share price up as much as 4.5 percent.

In a filing with the U.S. Securities and Exchange Commission, San Francisco-based Marcato said the company's shares were undervalued and that it has already had discussions with its management about improving operations and plans to keep talking with the top executives and the board.

For Marcato, which oversees roughly $1.5 billion in assets, the investment marks a return to the restaurant world only a few years after it invested in Dine Equity, which owns Applebee's and IHOP. And it marks the fund's biggest activist play in nearly a year since it said in September 2015 that it had bought a stake in LPL Financial Holdings, which it has since sold.

The fund's biggest investments include Bank of New York Mellon (NYSE:BK) and auction house Sothebys Holdings.

Marcato's founder, Mick McGuire, who had previously worked as a partner at William Ackman's Pershing Square (NYSE:SQ) Capital Management, traditionally urges companies where he invests to allocate capital more wisely.

Activist investors often press for strategic and other changes and at Buffalo Wild Wings those might include calls for the company to buy back more stock and to have more of its restaurants owned by franchisees instead of the company itself.

The company did not immediately respond to an email seeking comment about the hedge fund's investment.

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Marcato Capital Management began making its investment in the company last month and becomes the largest hedge fund investor in the stock after big-name mutual fund investors including Fidelity, Vanguard and BlackRock.

The hedge fund's investment comes at a time the company is searching for a new chief financial officer after Mary Twinem retired earlier this year. Wells Fargo (NYSE:WFC) analysts wrote in a July 13 research note that the company is trading at a roughly 20 percent discount to historical valuation levels and that investors could demand more cost cuts and push for more refranchising.

Activist investors in general have seen investors pull back some money as returns have lagged over the last year. Marcato lost 12 percent during the first six months of the year and returned an average 9 percent a year over its six-year lifetime.

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