* Starboard nominates two to CarMax ( KMX ) board

* Hedge fund owns $350 million stake in used car retailer

* CarMax ( KMX ) recently appointed new CEO who has history in

transforming customer experience

(Updates sourcing to Starboard in paragraph 1, adds comment

from CarMax ( KMX ))

By Svea Herbst-Bayliss

NEW YORK, March 11 (Reuters) - Starboard Value said it

has taken a stake in CarMax ( KMX ) and nominated two directors

to its board, urging the used car retailer to improve the

experience of its digital users, cut costs and change its

pricing structure.

Starboard, one of the industry's busiest activist investors,

now owns roughly $350 million worth of shares in CarMax ( KMX ) and

nominated Bill Cobb, the CEO of home warranties provider

Frontdoor ( FTDR ), and Jeffrey Smith, Starboard's founder and

chief executive, as directors. The company currently has nine

directors.

CarMax ( KMX ) is the largest used car retailer in the U.S., selling

over one million vehicles annually in retail and wholesale

through a scaled omnichannel platform earning more than $26

billion in revenue a year. Its stock price has dropped 43% in

the last 12 months and traded at $42.07 on Wednesday, valuing

the company at $6 billion.

Starboard said in a letter to the board and its chief

executive officer "We are thrilled to be involved in CarMax ( KMX ), a

structurally strong and durable business."

Starboard signaled support for Keith Barr, who was named CEO

last month and has led a digital transformation and enhanced the

customer experience when he served as chief executive of

InterContinental Hotels Group from 2017 to 2023.

Starboard wrote that the company's superior omnichannel can

deliver sustained share gains with an improved digital user

experience, improved cost efficiencies, and more dynamic

pricing, the source who has seen the letter said.

CarMax ( KMX ) said its discussions with Starboard have been

"productive" and said it is pleased to understand that the hedge

fund is supportive of the company's new chief executive.

"CarMax ( KMX ) has been taking the necessary steps to ensure that

this business delivers on its potential and is responsive to

shareholders," Tom Folliard, executive chair of the CarMax ( KMX ) board

said in a statement.

This is the second time this week that a new Starboard

position has been revealed. On Monday, the hedge fund said it

now owns shares in French fry-maker Lamb Weston ( LW ). It urged

the company, which supplies McDonald's French fries, to double

its planned cost cuts and move more quickly on adopting other

changes that may already be in the works.

CarMax ( KMX ) has faced stiffer competition over the years from

online seller Carvana and AutoNation, which offers traditional

dealerships. Starboard has identified places to cut costs and is

pressing CarMax ( KMX ) to find some $300 million in reductions in

administrative and operations costs.

The hedge fund has argued the company's business model where

it sells cars online but also has some 250 car lots where

customers can see and drive the vehicles should be popular and

lucrative with some changes like more dynamic pricing to better

respond to market ups and downs.

Starboard has a history of investing in companies associated

with cars and in 2017 bought a nearly 10% stake in Cars.com.

More recently it invested in Ritchie Bros. Auctioneers, which is

now RB Global, and is the world's biggest auctioneer of vehicles

and commercial assets.