So much for the high tide of activism.
There's been a much-discussed theory that hedge funds have reached their limits in their ability to foment fundamental changes at companies. With stock valuations stretched and with the Fed raising rates, many commentators have said a world where a hedge fund takes a position and gets long and loud about the inability of management to do a good job and the need to replace has come and gone.
But events of the last few weeks would indicate otherwise.
First, there's the heated battle at Buffalo Wild Wings (BWLD) where an outfit called Marcato has been raising issues about the performance, or lack thereof, by CEO Sally Smith. Marcato wants her fired and wants several directors replaced and issued a blistering letter alleging listless management that has no plan and repeated failures to hit goals while having what it calls a de minimis economic alignment with shareholders.
If you look at the stock of Buffalo Wild Wings, you can make a case that Marcato has a point: BWLD has done nothing for almost four years. It's true that the casual dining sector has its hits and misses, but it's also true that the company has delivered lackluster results. Given that there are buyers out there for casual dining companies, as we saw recently with Popeyes (PLKI) getting a terrific bid from Restaurant Brands (QSR) , and Panera Bread (PNRA) snagging a smashing bid from JAB Holding, a vote for Marcato could produce some results that break the desultory pattern of performance.
Then there's the saber rattling over at Whole Foods (WFM) , where Jana Partners has taken a stake and urged an upheaval that I think has put the company into play. Today, Credit Suisse suggests that Kroger (KR) , which needs market share gains to continue to grow, is a logical suitor. The stock has done poorly of late -- although you have to acknowledge it was a star for ages -- and I can see why someone would agitate for change.
But perhaps the most bizarre fight currently under way involves the struggle for control of Arconic (ARNC) , the parent company that cleaved off Alcoa (AA) and became a high-tech aluminum producer chiefly for aerospace.
Here Elliott Management had sought to throw out CEO Klaus Kleinfeld, who had executed the split, which Elliott had supported. Elliott, led by Paul Singer, thought Kleinfeld had been doing a poor job at the helm and is agitating to put in its own people, even as it already had three of them on the board.
I had thought Kleinfeld would beat back the challenge as the stock of Arconic has been a good bet -- we own it for Action Alerts PLUS -- since the split, although you could argue the stock has only taken off because of Elliott's buying, as I do not expect a good quarter.
But Kleinfeld took the ill-advised strategy of sending a letter directly, on his own letterhead, to Singer that alleges, somewhat bizarrely and apparently falsely, that Singer has something to hide about a celebration after a soccer match in Berlin back in 2006.
Kleinfeld's letter talks about "colorful memories" Singer created that were "unforgettable without a doubt" and "have the strong potential to become lastingly legendary."
His P.S. in this somewhat rambling note was also quizzical: "If I manage to find a Native American Indian's feather headdress, I will send this additional essential part of the memories. And by the way, Singing in the Rain is indeed a wonderful classic -- even though I have never tried to sing it in a fountain."
Was this a veiled threat of some sort of exposure? Was it extortion? When Singer showed the board of Arconic the letter, they voted to fire Kleinfeld, so the notion that it may have been in jest went out the window, as did, apparently, the notion that anything embarrassing may have even happened.
Here's my take. I had favored the breakup and the job Kleinfeld had done, but I think it is time to give Elliott's team a chance to run the show. They have an excellent slate that is ready and I can't say the same for the management that rather unceremoniously dumped the architect of the change that initially drew me to the stock.
Did Elliott play a level of hardball that caused Kleinfeld to suspend his better judgment? It doesn't matter now. What matters is that if Arconic's stock is to go higher, the insurgents can better handle the ropes.
Activism's a tough game. But all of these instances show it just might be working and it is way too early to say it's peaked. It's having too much impact to go away any time soon.