Nashville-based O'Charley's Inc. said Tuesday that Gregory L. Burns, its longtime chairman and CEO, will retire early next year after an agreement that cedes more control to an activist shareholder group on the restaurant chain's board.
The move comes as the casual dining sector sees fewer guests and weaker sales amid crashing consumer confidence and reduced spending. O'Charley's stock closed on Friday at $2.22 a share — far off its 52-week high of nearly $16 a share.
One of the company's largest shareholders, New York-based hedge fund Crescendo Partners, pressured O'Charley's into putting three Crescendo nominees on the restaurant company's board this summer, and on Tuesday the two firms said a revised agreement will give the hedge fund a fourth seat within 10 days.
That means Crescendo will control one-third of O'Charley's 12 board seats — a clear sign to analysts that the hedge fund will have a big say in determining the company's next leader.
Amy Greene, a research analyst with Avondale Partners, said she believes the new CEO will come from outside O'Charley's.
"You're going to need someone with turnaround experience, particularly in casual dining," Greene said, adding that the ideal candidate would have experience with different types of casual dining concepts.
Sale of chain isn't likelyCrescendo Partners is "a major shareholder. It's a reflection of that reality," said analyst Bryan C. Elliott of Raymond James & Associates Inc. "They will certainly have a major role to play" in the selection of the new CEO.
Last year, the hedge fund said it wanted O'Charley's to consider repurchasing stock, undertaking a sale-leaseback of real estate, re-franchising company-owned restaurants in poorly performing markets and perhaps selling its steakhouse chain, Stoney River, or the entire company.
O'Charley's Chief Financial Officer Lawrence E. Hyatt, who will fill Burns' job on a temporary basis, said the national credit crunch makes it unlikely that all or part of the company will be sold anytime soon.
"Now is a very difficult time for transactions as a result of conditions in the capital markets," Hyatt said. "If at some point in the future, if the way to maximize value would be through some kind of transaction, we would certainly consider that. But that probably is not on the horizon on the short-term."
Burns, 53, will retire Feb. 12. The company will start a nationwide search for Burns' replacement. Hyatt declined to comment when asked if Crescendo Partners forced Burns to step down. Starting Feb. 13, Hyatt will become interim CEO.
Board member Richard Reiss Jr., chairman of a private investment management firm, becomes lead independent director, and Douglas Benham will be chairman of the O'Charley's executive committee.
Benham, former president and CEO of Arby's Restaurant Group, was one of Crescendo's picks for O'Charley's board.
Gaylord denies bid for control
Investors flee stocks
Success with Short Sales
