By Michael Flaherty and Lauren Hirsch
NEW YORK (Reuters) - More than half of the directors on Whole Foods Market Inc's board will step down, a person familiar with the matter said on Wednesday, in a dramatic shake-up at the grocery chain as it grapples with a sagging stock price and frustrated investors.
The company is expected to announce the departure of five directors, including Chairman John Elstrott, when it reports earnings on Wednesday, the person said, with two more due to leave later this year.
Whole Foods (O:WFM), whose board currently has 12 directors, will also announce the appointment of four new directors on Wednesday, the person said. Final details were still being worked out and could change ahead of the earnings release, the person said.
The move comes after Jana Partners took an 8.3 percent stake in the company and nominated four directors to serve on the board. Mutual fund firm Neuberger Berman, which owns a 2.7 percent stake, has also pressured the company to take steps to improve its stock price, which has fallen steadily since peaking in 2013.
Whole Foods has been losing shoppers to rivals as the natural and organic category it pioneered has gone mainstream at retailers including Kroger Co (N:KR) and Wal-Mart Stores Inc (N:WMT) as well as newer competitors like Amazon.com Inc (O:AMZN) and meal kit provider Blue Apron.
Whole Foods has not struck a standstill agreement with Jana, the source said, meaning the hedge fund can continue to pressure the company to turn around performance. So-called standstill agreements usually offer an activist hedge fund representation on the company's board in exchange for support and silence for at least the next year.
Jana Partners and a spokesman for Whole Foods were not immediately available for comment.
In a filing in April, Jana said it was frustrated with Whole Foods' lack of engagement regarding its strategic review, noting its "apparent unwillingness to engage in discussions with third parties regarding such alternatives."
Jana has nominated four directors to serve on the company's board, among them former Gap Inc (N:GPS) Chief Executive Glenn Murphy, former Harris Teeter Supermarkets CEO Thomas "Tad" Dickson and former Barclays (LON:BARC) stock analyst Meredith Adler.
Jana can still nominate that slate at the next Whole Foods annual meeting, which is expected to be held in February.
Late last year, Whole Foods returned co-founder John Mackey to the role of solo CEO after six years of splitting the job with Walter Robb, who focused on operations, betting that Mackey would be best to lead a turnaround.
After Jana disclosed its stake, acquisition speculation swirled around the company, though a suitor has yet to emerge.
The Wall Street Journal was first to report the Whole Foods board departures.