Chipotle seeks turnaround expert to replace Ells as CEO

By Sruthi Ramakrishnan

(Reuters) - Chipotle Mexican Grill Inc co-founder Steve Ells said on Wednesday he would step down as chief executive, succumbing to pressure from investors after failing to turn around the burrito chain from a string of food safety lapses.

The company said it was searching for a "new leader with demonstrated turnaround expertise" to replace Ells, who will stay on as executive chairman.

Chipotle's shares, which have more than halved in value since the first reports of a major e-coli outbreak linked to its restaurants in October 2015, rose 4.7 percent to $299.38 in premarket trading on Wednesday.

"Bringing in a new CEO is the right thing to do for all our stakeholders," Ells said in a statement. "Simply put, we need to execute better to ensure our future success."

Ells has held or shared the chief executive's role since founding Chipotle in 1993, attracting investment from McDonald's Corp before taking it public in a blockbuster 2006 stock market launch.

Years of double-digit sales growth stalled, however, after the e-coli outbreak, which spread across several states, affecting more than 50 people.

The company was also subsequently hit by cases of salmonella poisoning and norovirus stomach bugs, which made it the subject of chat show hosts' jokes and kept diners away.

Ells has led the company on his own since December of last year when co-CEO Monty Moran stepped down amid intense pressure from investors including William Ackman, whose Pershing Square Capital Management LP is Chipotle's biggest investor.

That same month Chipotle named four new directors to its board, including Pershing Square partner Ali Namvar and Matthew Paull, a Pershing Square advisory board member and former McDonald's chief financial officer.

A group of investors in March withdrew a proposal to split the chairman and CEO roles after the company vowed to strengthen the lead director position held by Neil Flanzraich, who has been an independent director since September 2014.

"This news is unexpected given the recent moves to streamline the CEO position, but is an absolutely critical, important next chapter for Chipotle, which has been struggling to recover sales under Ells," Mizuho Securities USA analyst Jeremy Scott wrote in a note.

"We believe the move today will help to restore confidence in the board, the activist, and in the stock."

Chipotle said it had formed a search committee comprised of directors Robin Hickenlooper and Pershing Square's Namvar, as well as Ells, to identify a new CEO.

Prior to Wednesday's announcement, some analysts had floated Panera Bread founder Ron Shaich as a potential replacement for Ells.

Shaich recently announced he would step down as Panera CEO on Jan. 1, but remain as chairman to work on strategy, communications and acquisitions for the bakery-cafe chain.

Given Shaich's role at Panera, Bernstein analyst Sara Senatore said it seemed unlikely that he would jump to rival Chipotle.

(Additional reporting by Lisa Baertlein in Los Angeles and Siddharth Cavale in Bengaluru; Editing by Savio D'Souza and Patrick Graham)