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July 28 Darden Restaurants Inc's food fight with activist investors Barington Capital Group LP and Starboard Value LP entered a new phase on Monday, when the company said Clarence Otis would step down as chairman and chief executive officer.
In further concessions, Orlando-based Darden said it would separate the chairman and chief executive roles, and clear the way for some of Starboard's proposed directors to be elected at its annual meeting.
Barington and Starboard said the moves from the company did not come fast enough, nor go as far as needed, and both called for a major overhaul of Darden's board.
Shares of Darden, which just closed the sale of its struggling Red Lobster chain and is working to boost business at its flagship Olive Garden restaurants, were up almost 4 percent in extended trading.
Starboard launched a fight to take over Darden's board in May, saying the then-pending Red Lobster sale was a "destructive transaction" that ignored the rights of shareholders.
Darden's board expects to nominate nine directors for the 12 available seats at the Sept. 30 shareholder meeting. Doing so, would ensure that at least three of the nominees proposed by Starboard would be elected, the company said.
"While a leadership change at Darden and the appointment of an independent chairman are positive steps that are long overdue, we view the board's 11th hour gesture to concede three board seats to Starboard as 'too little, too late'," Barington CEO James Mitarotonda said in a statement. He had asked Darden to split the chairman and CEO roles and agitated for Otis to be replaced.
"This board has a history of repeatedly making the easy decision, rather than the decision that is best for shareholders," Jeffrey Smith, Starboard's CEO, said in a statement.
"Darden needs a majority change to the board as soon as possible to jumpstart and complete the process of recruiting a truly great leader," Smith added.
Starboard owns about 5.5 percent of Darden's shares. Barington represents a group that holds more than 2 percent of Darden's shares.
Howard Penney, a restaurant analyst at Hedgeye Risk Management and a vocal critic of Darden's management, had a one word reaction to the CEO's departure and the other news: "Amen!"
Otis, who has been charge for a decade, will remain CEO until Dec. 31 or until a replacement is appointed.
Darden named independent lead director, Charles Ledsinger Jr, as independent non-executive chairman, effective immediately.
Earlier on Monday, Darden said it finalized the $2.1 billion sale of Red Lobster to Golden Gate Capital, a deal opposed by both Starboard and Barington, which were pressing for more comprehensive changes. Investor ire surged after Otis resisted putting the sale to a shareholder vote.
A Darden representative said Otis' departure was a "mutual decision" between the CEO and the board and had been under discussion for some time. The exit package has not yet been determined.
"With the Red Lobster sale complete and progress on our Olive Garden brand renaissance and other strategic priorities underway, this is the right time for me to step down," Otis said in a statement.
Darden shares rose $1.63 to $46.55 in after-hours trading. (Reporting by Lisa Baertlein in Los Angeles and Devika Krishna Kumar in Bangalore; Editing by David Gregorio, Grant McCool, Andre Grenon and Lisa Shumaker)