(Adds company statement on Otis’ package, background)
By Lisa Baertlein
July 28 (Reuters) - Darden Restaurants Inc said on Monday that Clarence Otis would step down as chairman and chief executive officer, buckling under pressure from activist investors Barington Capital Group LP and Starboard Value LP.
Shares of Darden, which just closed the sale of its Red Lobster chain and is working to boost business at its flagship Olive Garden restaurants, jumped 5 percent in extended trading.
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 Chairman and CEO James Mitarotonda, who had asked Darden to split the chairman and CEO roles, said the changes were not fast enough and did not go as far as needed, adding he had lost confidence in Otis’s ability to lead.
“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’,” Mitarotonda said in a statement.
The change required could only be accomplished by the election of a new slate of independent directors, he said. Barington represents a group that holds more than 2 percent of Darden’s shares.
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 said on Monday its board expects to nominate nine directors for the 12 available seats at the Sept. 30 shareholder meeting. By doing so, Darden said it ensured that at least three of the nominees proposed by Starboard would be elected.
Representatives from Starboard, which owns about 5.5 percent of Darden’s shares, were not immediately available for comment.
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, who were pressing for more comprehensive changes. Investor ire surged after Otis resisted putting the sale to a shareholder vote.
A Darden spokesperson 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 were up $2.23 to $47.15 in after-hours trading. (Reporting by Lisa Baertlein in Los Angeles and Devika Krishna Kumar in Bangalore; Editing by David Gregorio, Grant McCool and Andre Grenon)