Idaho maker of fries for McDonald’s faces big change forced by activist investor

BOISE – An activist investment partnership just scored a victory in its effort to shake up a struggling Idaho french-fry maker.

First, the investment group built a stake in the company. Then it forced the CEO to step aside. Now it has won the corporate chairmanship and several other board seats.

Eagle-based potato manufacturing giant Lamb Weston announced Monday that it will restructure its board after coming to an agreement with two of its largest shareholders, activist investor Jana Partners and Continental Grain Co., according to a news release.

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.

Jana Partners had built a stake of over 5% in Lamb Weston last year and had been pushing the company to change its board or explore a sale because of “disastrous financial results,” the investor previously said.

The company said in the release that it would appoint six new independent directors to its board, including a new chairman. The board will grow from 11 to 13 members, with 12 seats held by independent directors.

“Following our constructive engagement with them and taking into account perspectives gleaned from discussions with additional stockholders, we are confident this outcome is in the best interests of the company and all of our shareholders,” CEO Mike Smith said in the release.

Smith took over from Lamb Weston’s former top executive Tom Werner in January after New York City-based Jana sent the company a letter saying significant leadership changes were needed. The company had been struggling, citing reduced restaurant traffic. It reported in December that net sales were down 8% year over year.

But the CEO swap wasn’t enough for the investment firm, whose website touts a 20-year record of leveraging shares in various public companies to take over or force changes. Jana Partners called Smith’s appointment “just the latest stick in the eye” and accused the board of failing its shareholders. It said more changes were needed. Now, it seems the firm has received what it wanted.

“We are pleased to have reached this collaborative outcome with the company,” Jana Partners Managing Partner and Portfolio Manager Scott Ostfeld said in the release. “I look forward to working with the board and management to improve performance and deliver shareholder value.”

Lamb Weston employs over 1,000 people in Idaho, according to the Idaho Department of Labor. Its headquarters are near the intersection of Eagle Road and State Street in Eagle.

The company has two plants in Idaho, in Twin Falls and American Falls, that are supplied by the region’s potato farmers. It also has corporate offices, research facilities and more than a dozen potato-processing factories in the Mid-Columbia area in Washington state, where it employs about 3,000 people, the Tri-City Herald reported.

Jana Partners and New York City-based Continental Grain – a former grain company that mostly invests in other businesses, and which holds just under 1% of Lamb Weston stock – agreed to support the board’s new slate of directors at Lamb Weston’s annual stockholders meeting scheduled for September.

The full agreement was filed publicly with the Securities and Exchange Commission on Monday. The changes will take place no later than July 11, according to the release.

The newly named directors are former Nestle CEO Bradley Alford, Ruth Kimmelshue, Timothy McLevish and Scott Ostfeld. Two other members, Lawrence Kurzius and Paul Maass, were mutually agreed upon, the release said. Charles Blixt, W.G. Jurgensen, Robert Niblock and Maria Renna Sharpe will step down.

Lamb Weston stock trades on the New York Stock Exchange under the ticker LW. The company’s shares closed at $52.38 Tuesday, up from $51.87 Monday.