(Bloomberg View) -- I’ll say this for Mick McGuire, Activist Investor™: The man knows how to make a buck. As 2017 winds down, his hedge fund, Marcato Capital Management LP, is up around 24 percent, five percentage points better than the S&P 500 index. To put it another way, the 41-year old Bill Ackman protege is doing what hedge-fund guys are always striving for, but so often fall to accomplish: He’s “creating alpha.”
Taking a look at his positions — as evidenced by his most recent federal filing — you see a mixed bag. His big winner was Barry Diller’s company, IAC Interactive Corp., whose stock nearly doubled this year. He had other, smaller winners too, such as AAR Corp., CF Industries, La Quinta Holdings Corp., Sotheby’s and Terex Corp.
He also holds losers, including Virtus Investment Partners Inc., Shutterfly Inc. and Avnet Inc.
And then there are the two companies where he did his activist thing this year: Buffalo Wild Wings Inc. and Deckers Outdoors Corp. Let’s focus on those, shall we? After all, activism is what it’s all about for Mick McGuire, Activist Investor™. It’s why we’ve been following his maneuvers since June. And those two stocks offer a pretty good window into how activists — or at least this activist — make money.
When last we left Buffalo Wild Wings, it was a bit of a disaster. McGuire had won a proxy fight and a seat on the board by telling investors that he had a plan that would revitalize the sports bar chain and double or even triple the value of the stock.
The proxy fight ended in early June with the stock at $143 a share. Alas, the stock spent the rest of the summer in free-fall, bottoming out at $96. Although the company claimed to be carrying out McGuire’s plan, it was hard to see the proof. Its second-quarter numbers — the first earnings report with McGuire on the board — were dismal.
But the third quarter surprised everyone, as Buffalo Wild Wings beat analysts’ expectations and raised its year-end forecast. This was partly due to cost cutting — give McGuire some credit for that — but more because its longtime chief executive, Sally Smith, who was due to leave as soon as the company found a replacement, was emphasizing sales of less expensive boneless chicken wings. Although Marcato was still losing money on the stock, it was on the rise.
Part of the reason I started following Mick McGuire, Activist Investor™ (his real name is Richard) is to learn whether he actually knows how to turn a company around, or whether he just knows financial-engineering lingo. In the end, Buffalo Wild Wings didn’t provide an answer. In early December, McGuire got bailed out by another hedge fund, Roark Capital Group, which bought the company for $2.9 billion, or $157 per share.
This is exactly what Buffalo Wild Wings needs; Roark has genuine expertise in turning around restaurant chains. As for McGuire and Marcato, they’ll make money once the deal is completed. But it’s hardly the home run McGuire once predicted.
No matter. McGuire’s energies were already elsewhere. He was in the middle of a nasty proxy fight with Deckers Outdoor Corp., which makes shoes, most famously Uggs, those ugly but strangely popular boots. Or at least they were popular; one of the reasons Deckers has struggled is that as the Uggs cachet waned, the company has been unable to turn things around.
This time, McGuire had nominated a slate to replace the entire board! Back and forth they went all fall, sending letters to Deckers shareholders, accusing each other of various perfidies.
“Since Marcato disclosed its stake in February 2017,” the hedge fund wrote to shareholders in November,
Deckers has inundated stockholders with falsities regarding its "measurable progress" and "business transformation." The truth is that over the last five years, the Company's underwhelming performance supports our view that the incumbent directors have ACTED WITHOUT URGENCY, and while presiding over a company that has FAILED to meet nearly every strategic priority it set.
“As you may know,” responded the Deckers board,
in a last-minute and desperate attempt to gain board representation, Marcato Capital Management has abandoned its previously announced strategy for a change in the composition of a majority of the Deckers Board and is now seeking any representation on the Deckers Board that it can get. Don’t be fooled: Marcato is continuing to put the value of your investment in Deckers at risk by advocating for a series of value-destructive proposals.
Et cetera, et cetera.
After all three proxy advisory firms came out against McGuire’s plan to replace the entire board, he switched gears and sought three board seats instead. This caused one of the firms, Institutional Shareholder Services, to switch sides and support Marcato. But it wasn’t enough. At the company’s annual meeting on Thursday, Deckers announced that it had beaten back Marcato and that all its board members had been re-elected.
The most instructive aspect of this whole fight was how the stock performed. When McGuire first disclosed his position, the share price was in the high $40s. By early December, it had reached $77. Although it dropped some after Marcato lost the proxy fight, it is still around $74.
McGuire will no doubt tell you that even though he lost the battle, he won the war. Why? Because, he would probably say, in an effort to fend him off, the company wound up doing much of what he demanded, even if it did so kicking and screaming. It has agreed to add two new board members, to increase its stock buyback and to rethink its retail strategy. As he later put it in a statement, “We are pleased to have served as a positive change agent and believe our involvement has created significant value for all stockholders.”
In other words, McGuire is saying that his ideas, grudgingly accepted by Deckers, were what made the stock rise. But it’s more likely that simply crossing swords with Deckers served as the catalyst. McGuire didn’t need to win, because, well, he’s Mick McGuire, Activist Investor™. Which means there’s a built-in expectation that he can fix a company and “increase shareholder value.” Even though he’s never actually done it.
But hey, a win is a win. And one of these days, McGuire is going to gain control of a company and will finally be in a position to turn it around. We can hardly wait.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is the co-author of "Indentured: The Inside Story of the Rebellion Against the NCAA."
For more columns from Bloomberg View, visit https://www.bloomberg.com/view.
©2017 Bloomberg L.P.
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