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Diving overview:
- Activist investor Starboard Value is demanding that Lamb Weston double its cost-cutting targets, claiming the frozen French fries maker has too high operating costs compared to its competitors.
- In a letter to Lamb Weston CEO Mike Smith, Starboard wrote that the company should aim for $500 million in cost savings, double its previous target of $250 million, most of which would come from overhead.
- The letter also asks Lamb Weston to consider selling certain businesses in Asia. The request comes after the company signed a separate deal with Jana Partners last summer that would give the activist investor greater influence on the board.
Dive Insights:
Activist investors are increasingly calling for food and beverage companies to restore sales as it becomes clear that consumer spending will not recover anytime soon.
PepsiCo and JM Smucker are among the companies that have announced deals with activist investors in the past six months. PepsiCo agreed to reduce its product offering and focus on affordability, and JM Smucker added two members to its board.
In a letter to Lamb Weston, Starboard argues that the company needs to do more to “catch up” with peers like Tyson and Hormel. Lamb Weston, which supplies frozen fries to restaurants such as McDonald’s, is facing a drop in sales as cash-strapped customers stay home.
Starboard believes the company can do more to grow revenue, especially as Lamb Weston begins to report signs of recovery under Smith, who assumes the CEO role in January 2025.
“In our view, the $500 million aggregate cost reduction program is achievable and necessary to ensure that margin expansion reflects durable structural principles as well as improved industry conditions,” Starboard wrote.
The Wall Street Journal reported that Starboard has taken a large stake in Lamb Weston and is now one of the frozen French fries maker’s largest shareholders. After acquiring JDE Peet’s for $18 billion, Starboard also bought a stake in beverage giant Keurig Dr Pepper, Reuters reported.
