Whole Foods Market, Inc. is dramatically reshaping its board of directors, an effort to show it is open to change after two big shareholders called on the organic grocery chain to explore a sale.
Continue Reading Below
The Austin, Texas, company plans to remove more than half of its 12 sitting directors over the course of the year and name a new chairman, according to people familiar with the matter. The move comes as Whole Foods tries to fend off a potential board fight with activist investor Jana Partners LLC, which last month disclosed an 8.3% stake in Whole Foods and pressed the company to accelerate its turnaround.
The shake-up isn't part of a settlement with Jana.
Whole Foods privately offered to take two of Jana's nominees for the board, but the hedge fund balked at the offer and restrictions it would have imposed on its ability to keep pushing for more change as soon as this summer, a Jana spokesman said.
"We decided it made the most sense to let Whole Foods remove more than half of its underperforming board while maintaining all of our options going forward, rather than tying our hands now," he said. "We will now be watching carefully to see how they address the management issues at Whole Foods and to ensure that the board is seriously pursuing all avenues to maximizing shareholder value."
Whole Foods shares have dropped sharply since peaking in 2013, and the company's sales have fallen over the past 18 months. Same-store sales -- a key retailer metric -- fell 2.5% during its fiscal year that ended in September 2016. The stock is up some 18% since Jana announced its campaign.
Continue Reading Below
The company already has pledged to change its board over the next few years and detailed a nine-point plan for reviving its flagging sales. It recently made co-founder John Mackey sole chief executive and is taking steps to change its back-office functions that have concerned some shareholders.
Whole Foods is scheduled to report quarterly results Wednesday evening, when it is also expected to respond to critics who have said the company has been slow to adapt to a changing competitive landscape.
Jana and mutual-fund giant Neuberger Berman, which owns a 2.7% stake in Whole Foods, have pressed the company to consider a sale and to add directors with experience in retail operations, technology, finance and real estate. When it launched its campaign last month, Jana suggested three potential nominees.
Jana's campaign comes during one of the rockiest periods in Whole Foods' nearly 40-year history. The company, with its 465 stores nationwide, is largely credited with making organic food into a multibillion-dollar market in the U.S.
But conventional grocers have moved into the market, offering cheaper prices and cutting into Whole Foods' sales. Whole Foods has reported 18 months of declines in same-store sales, the longest stretch in the key retailer metric since going public in 1992.
The company is widely expected to report a further drop in same-store sales on Wednesday, with Wall Street analysts predicting a decline of at least 3%.
Investors have put the focus on the board's lack of recent change and proxy advisory firms have questioned the length of tenure, independence and meeting attendance rates of Whole Foods' board. Glass Lewis & Co. recently flagged "the substantial tenures" of its directors, who average 14 years of service.
In December, Whole Foods implemented a board succession plan meant to bring the average tenure of its directors more in line with other companies over the next three to five years. It would do this through new directors and expected retirements.
Whole Foods agreed to place 15-year limits on the service of newer board members beginning next year and added Google.com executive Mary Ellen Coe to the board, its first new appointee since 2008.
All of the board members were re-elected with at least 84% of the vote during Whole Foods' annual shareholders meeting in February.
Write to David Benoit at email@example.com and Heather Haddon at firstname.lastname@example.org
(END) Dow Jones Newswires
May 10, 2017 13:54 ET (17:54 GMT)