The attack presentation used to be the preserve of activist investors, not management. With just a few weeks remaining until some of the biggest proxy contests of the year climax, however, that seems to be changing.

Marcato Capital Proxy Contest Buffalo Wild Wings

In recent weeks, Marcato Capital Management has made its proxy contest at Buffalo Wild Wings personal, seeking the ouster of CEO Sally Smith, criticizing her sales of company stock, lack of open market purchases and pinning the slowdown in operating performance solely on her watch. “Shareholders must ask themselves this: If Ms. Smith acts as if she does not believe in the long-term value of the company, why should shareholders believe in her ability to continue as its leader?” Marcato’s Mick McGuire wrote in a recent letter to the board.

This week, the company punched back. An investor presentation released on Tuesday spends three slides detailing McGuire’s past disappointments at NCR, Applebee’s and Borders, saying the activist has “no track record of success in a boardroom.” Other slides attack two of the three other nominees on the slate, charging franchisee Emil Lee Sanders with a conflict of interest and suggesting Scott Bergen held back Pizza Hut as CEO of its U.S. operation. The final nominee, Sam Rovit, was included on the company’s slate – to Marcato’s frustration.

Buffalo Wild isn’t the only company fighting back, after a couple of seasons in which management teams have been seen as desperate to settle despite the encouragement of institutional investors to send more situations to a vote. Yesterday, Rent-A-Center described its foe, Engaged Capital, as a “short-term focused activist hedge fund with a history of destroying stockholder value.” The rent-to-own retailer went on to attack Engaged’s “aggressive rhetoric and dubious claims” and listed “red flags” next to the activist’s nominees.

An adviser I spoke to this week said many factors go into deciding the tone taken in these presentations – from messages that resonate on the campaign trail to the level of flexibility in the activist’s approach. But ultimately, if an activist spends time attacking management’s record of creating shareholder value, he said, why wouldn’t the company do it if the same is true of the activist’s record?

Often, companies try to take the high road. Taubman Centers has been positively restrained in its response to Land and Buildings. The real estate investment trust is pinning its hopes on enough shareholders agreeing that the activist’s comments constitute “hyperbole” and back management.

What explains these different approaches? It could be that the first two are closer, necessitating a higher-risk strategy. With 30% of the votes held by insiders at Taubman, a narrow victory could reflect badly on management, so perhaps it makes sense to keep the stakes low (although a court case initiated by the activist could have a bearing on the result – Land and Buildings wants the Taubman family’s share of the vote cut to just over 8%).

All three situations look difficult to settle, hence why the contests are being put to shareholders. But issuers may also be reasoning that activists in need of a win can be pushed into a corner. On Thursday, Marcato hedged much of its position in Buffalo Wild (while also taking out options that would benefit its investors if the share price rockets). At a cost of over $2.2 million, those moves may be prudent for Marcato’s investors, especially as a sell-off linked to political concerns has already taken shares into the territory of its put options. But they also cost real money, and advertise that there are no sure things, even in activist investing.

Article by Activist Insight