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John Schnatter wants Papa John’s to cough up its ‘poison pill’

The founder threatened further action if the company doesn't drop the provision keeping him from buying more shares.
Photograph by Scott Mitchell

John Schnatter demanded that the Papa John’s board of directors end a “poison pill” provision keeping him from buying any more shares of the company, threatening the pizza concept with further action if they don’t respond by Tuesday.

The chain’s disgraced founder and former chairman and CEO was also critical of existing management and its impact on the company’s performance.

“The leadership that Steve Ritchie established is crumbling, and now he is promoting the wrong people and losing long-term employees who provided the essence of what Papa John’s was created to do—provide customers with better ingredients and better pizza,” Schnatter wrote in the letter, which was dated last week.

He promised some form of action if the company doesn’t respond to his request by the end of day Tuesday, though it doesn’t specify what kind of action.

In an emailed statement, Papa John’s defended its poison pill, officially known as a shareholder rights plan.

“The independent directors of the Papa John’s board continue to believe the rights plan is in the best interests of the company and all Papa John’s stockholders,” the company said in a statement. “As detailed when it was adopted, the rights plan does not prevent the board from considering any offer that it considers to be in the best interest of Papa John’s stockholders. The plan also reduces the likelihood that any person or group gains control of Papa John’s without paying an appropriate control premium to all the company’s stockholders.”

Papa John’s adopted the rights plan in July, shortly after Schnatter resigned as chairman after acknowledging the use of the N-word during a conference call, one designed to help him deal with media after he appeared to blame NFL player protests for his chain’s weak sales in November.

Schnatter owns 30% of Papa John’s shares and has been an activist investor ever since, filing multiple lawsuits against the company, starting a website called savepapajohns.com and repeatedly saying he regrets stepping down. The rights plan prevents people from amassing more than 15% of the company’s shares or, in Schnatter’s case, more than 31%.

In his letter, Schnatter said the plan “precludes shareholders from holding any substantive discussions about the company because of the threat of crippling dilution of their ownership in the company.”

He noted media reports indicating that the company is considering acquisition proposals and there is “at least one potential investor.”

But Schnatter also said that “several third parties have expressed an interest in speaking with me,” but that provisions in the plan keep him from discussing the company, his investment or investors’ plans for the company with him.

“I believe that preventing me from discussing such matters will lead to significant loss of value for all shareholders and is in plain contravention of your duties under Delaware law,” Schnatter said.

Schnatter also took aim at some leadership changes in recent weeks, which “are cause for deep concern for the future of the company and its direction.”

Earlier this month, the company restructured management, naming digital chief Mike Nettles to chief operating and growth officer, among several other promotions.

Papa John’s stock was up slightly Monday.

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