The Morning Brief: Two High-Profile Activist Battles Heat Up

May 05, 2017   Stephen Taub

Marcato's feud with Buffalo Wild Wings heats up, while Greenlight and GM issue duelling press releases on Thursday.

Buffalo Wild Wings, in a bitter proxy fight with Marcato Capital Management, trotted out a new group of peer companies to illustrate its claim that its stock has outperformed a basket of similar companies. In a new regulatory filing, the casual dining company said its shares outperformed the basket by 10.5 percent points over the past five years, 16 percentage points over the past three years, and 18.3 percentage points in just the past year.

"The casual dining peer group utilized by Buffalo Wild Wings properly excludes companies that are quick-serve, fast-food or delivery restaurants as well as companies outside the restaurant industry," Buffalo said in a regulatory filing. It then identified 14 companies that own restaurants it does see to be peers.

In response, Marcato, which earlier accused Buffalo Wild Wings of reporting erroneous peer group data, fired off a press release accusing the company of masking its underperformance by "changing its relative peer group as compared to its proxy peers." In a statement, Marcato’s Mick McGuire asserts, "The peer group Buffalo Wild Wings management used today is the third different one presented by the company in recent months. This desperate manipulation of the facts cannot mask Buffalo Wild Wings’ persistent underperformance and clear lack of any strategic plan to create long-term shareholder value." Shares of Buffalo Wild Wings rose slightly on Thursday, to $160.60.

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Meanwhile, Greenlight Capital’s battle with General Motors also grew more intense on Thursday when the hedge fund firm headed by David Einhorn sent a comprehensive letter to shareholders that emphasizes "GM’s significant valuation problem, poor stock performance and the board’s failure to address these persistent issues." It reiterated its assertion that its plan to split GM’s stock into two classes could unlock $14 to $40 billion of shareholder value.

In response, GM said in a press release, "After objective and thorough review over a seven-month period, GM’s Board determined that Greenlight’s proposal to eliminate the dividend on the existing GM common stock and distribute the proposed new 'dividend security’ creates an unacceptable level of risk, would not create the value Greenlight indicates, and would be detrimental to GM shareholders."

Shares of GM fell about 1 percent, to close at $33.16.

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Several investment banks slightly raised their price targets on Facebook, the most widely held hedge fund stock, after it reported mostly strong results for the latest quarter.

For example, Barclays raised its target from $154 to $160 but cut its earnings per share estimates for the next two years. However, it retained its overweight rating on the stock. In a note to clients, Barclays points out that the social media pioneer reported revenue and cash flow that was above consensus forecasts but in-line with its estimate. It also pointed out that user growth and engagement continue to "ramp up" at Facebook, calling these metrics "the most important part of the overall bull case."

It acknowledges it is getting harder for the company to beat revenue forecasts in a massive way, but adds, "We don’t think it’s required anymore. We would add to positions as investors digest that FB’s margins are likely done going up for now."

UBS raised its price target from $165 to $168. "FB’s solid across the board performance should be the story that emerges from this set of results," it tells clients in a note. Credit Suisse raised its earnings estimates but kept its price target at $175.

Shares of Facebook fell less than 1 percent, to close at $150.85.


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