The sharks are circling Eagle’s Lamb Weston as activist investor demands changes

A Boise-area company that makes french fries has been targeted by an activist investor.

Jana Partners, an investment firm with a 20-year record of leveraging its shares in various public companies to take over or force changes, has its eyes set on Eagle-based potato manufacturing giant Lamb Weston.

The activist has built a stake of over 5% in Lamb Weston and has been pushing the company to change its board and leadership or explore a sale.

Lamb Weston is the largest producer of french fries in North America and is a major supplier to restaurants, grocery stores and fast-food chains, including McDonald’s. The company has been struggling due to reduced restaurant traffic and on Thursday reported in its quarterly earnings results that net sales declined 8% year over year.

Jana Partners has a history of imposing uninvited takeovers. Earlier this year, Verizon Communications made a bid on Frontier Communications after the activist called on Frontier Communications to sell itself, Reuters reported.

The firm issued a letter to Lamb Weston’s board of directors Monday that said the company “wasted the chance” to grow shareholder value.

“Regrettably, we believe this dismal performance record significantly understates the magnitude of lost opportunity at the company,” the letter said. “… Significant board and leadership change is needed at Lamb Weston, and that in its absence the company should pursue a formal review of strategic alternatives, including a sale.”

During a call with investors Thursday, longtime Lamb Weston President and CEO Tom Werner announced he would step down.

Werner said Chief Operating Officer Mike Smith would replace him on Jan. 3. He said the transition was the “culmination of a thoughtful, yearslong succession-planning process” by the board. But the swap wasn’t enough for Jana Partners.

The activist issued a strongly worded statement after the call that railed against Lamb Weston’s “disastrous financial results” and called Werner’s replacement with Smith, who has worked at the company since 2007, “just the latest stick in the eye.” It accused the board of failing its shareholders.

“Enough is enough: Lamb Weston requires significant board change or, in its absence, should be sold,” the statement said.

J.P. Morgan analyst Kenneth Goldman made the only mention of the demands from Jana Partners during a question-and-answer portion of the call, where he inquired about whether there would be any meaningful changes to the board or if the board would be open to selling Lamb Weston. Werner declined to comment or say if the company plans to issue a response to the activists’ letter.

Lamb Weston’s shares were down over 20% Thursday in midday trading.

The company returned about $52 million to shareholders in the form of cash dividends but missed earnings estimates for its second fiscal quarter.

“Our performance so far has fallen short of expectations,” Bernadette Madarieta, the company’s chief financial officer, said during the call with investors. “As a result, we’re reducing our financial targets for the year to reflect our performance in the second quarter, as well as the increasingly competitive environment.”

Lamb Weston employs hundreds of people in American Falls in southeast Idaho and more than 10,000 people around the world in sales offices, manufacturing plants and corporate offices, according to its website.

The company faces allegations of illegal price fixing alongside Boise agribusiness giant J.R. Simplot and two other frozen-potato companies.

Together, the companies were sued in U.S. District Court in Illinois in November and accused of forming a “cartel” by conspiring to raise their prices for products like french fries, hash browns and tater tots at the same time and by the same amounts, the Idaho Statesman previously reported.