Buffalo Wild Wings Downgraded After Roark 'Sweetens' Bid

Buffalo Wild Wings (BWLD) was downgraded to Neutral from Buy at UBS following reports that Roark Capital has sweetened its bid for the company and a report that more than one potential bidder is considering the company.

ROARK'S SWEETENED BID: According to a report from Bloomberg, people familiar with the matter said Roark Capital, which owns Arby's and Carl's Jr., has sweetened its bid for Buffalo Wild Wings to about $155 per share. The new all-cash offer would value Buffalo Wild Wings at nearly $2.4B, the report said. Discussions between the two sides started in the past few days are "ongoing," the people added, noting that it is not certain a deal will be reached. Earlier this month, CNBC said Roark made an offer of over $150 per share, or more than $2.3B.

WHAT'S NOTABLE: Buffalo Wild Wings lost a proxy fight with activist Marcato Capital Management, which held a 6.4% stake in the company as of September 30, in June. After the proxy contest ended, Buffalo Wild Wings' chief executive officer Sally Smith said she would retire by the end of the year. The company has yet to name her successor. Roark Capital, which has investments in chains such as Cinnabon, Carvel and Auntie Anne's, earlier this year backed an unsuccessful attempt to buy Popeyes Louisiana Kitchen, which instead sold to Restaurant Brands International (QSR) for about $1.8B.

UBS MOVING TO THE SIDELINES: UBS analyst Dennis Geiger downgraded Buffalo Wild Wings to Neutral from Buy, and said the risk/reward is more balanced following the recent share rally fueled by Roark's bid for the company and another recent report that said more than one potential bidder is looking at buying the company. Without visibility into the likelihood of a takeout, it's difficult to argue for a much higher valuation, Geiger said. The analyst also said that while Roark's experience could support "better opportunities" in terms of a new CEO and management team, as well as improving operations, he believes that Buffalo Wild Wings could either reject the bid or seek a higher offer. Stifel analyst Chris O'Cull said earlier this month that an acquisition of Buffalo Wild Wings by Roark could "provide an attractive exit for Marcato Capital."

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