Why This Shareholder Opposes the Buffalo Wild Wings Buyout

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Arby's Restaurant Group and Buffalo Wild Wings (NASDAQ: BWLD) announced plans to merge on Nov. 28. Investors and media had been speculating since news first broke that Roark Capital -- a private equity firm and Arby's majority stakeholder -- had approached Buffalo Wild Wings management with an offer to take over the company.

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Shares had been climbing ever since, and now that the news is official, the stock is up over 30% in November. That may seem like good news for shareholders, but there is more to this story.

Details of the deal

In exchange for their ownership stake, Buffalo Wild Wings shareholders will be given $157 per share in cash. That values the company at $2.9 billion including net debt. After the transaction closes, B-Dubs will continue to operate independently from Arby's but as its wholly owned subsidiary.

Should shareholders vote in favor of the merger, the deal is expected to close in the first quarter of 2018. Buffalo Wild Wings CEO Sally Smith had this to say about the deal:

We are excited about this merger and confident Arby's represents an excellent partner for Buffalo Wild Wings. This transaction provides compelling value to our shareholders and is a testament to the hard work and efforts of our talented Team Members and franchisees. We are confident that the strength of our two industry-leading brands, under the sponsorship of Roark Capital -- an experienced restaurant and food service investor -- will enable us to capitalize on significant growth opportunities in the years ahead. 

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Why now isn't the time to sell

Shares have jumped to almost $156 per share in anticipation of the deal going through. That represents a significant rally from recent lows, but it's still far from the all-time highs the company reached a few years ago.

The last few years have admittedly been a struggle for B-Dubs. The chain is transitioning from a period of fast expansion to one of returning value to shareholders by growing profitability. Results thus far have been mixed. During that time, the overall restaurant industry slumped, weighing on business performance. Further muddying the waters was a battle with activist investor Marcato Capital that management lost during the summer. The company yielded a few seats on its board to the activist and CEO Sally Smith announced she would be retiring.

For those reasons, I outlined why I thought now was a bad time to sell when news first broke that B-Dubs was in deal talks with Roark Capital. For the sake of full disclosure, I am not sniveling, because I bought too high and need a better buyout price to break even. I first invested in the company during the spring of 2016 at $127 per share, so if the deal closes, I'm already coming out ahead.

The problem is that B-Dubs, and the restaurant industry overall, is still trying to find its footing during a rough patch. I believe the brand has great long-term potential -- a sentiment I apparently share with Arby's and Roark Capital -- and selling now doesn't reflect the full potential this business has.

Echoing that feeling last year was Mick McGuire of Marcato Capital. The activist said he initiated a position in B-Dubs at about $140 per share, and Marcato thought the stock could double or triple in the years ahead. Now on the board of directors, that thought has apparently changed. B-Dubs board unanimously voted in favor of this deal.

Furthermore, Marcato's plan of refranchising B-Dubs locations to unlock value in the stock won't play out for current shareholders if they vote in favor of selling. That would be contradictory to actions taken over the summer when shareholders voted in McGuire and two other Marcato-backed board members to shake up the company and put the refranchising plan in place.

Alas, profit is profit, and the recent rebound in Buffalo Wild Wings' stock has been impressive. From one shareholder to another, though, it's worth considering the above points before the Arby's merger deal gets voted on and finalized.

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Nicholas Rossolillo owns shares of Buffalo Wild Wings. The Motley Fool owns shares of and recommends Buffalo Wild Wings. The Motley Fool has a disclosure policy.