Jeff Smith is stepping down as chairman of Papa Johns and is being replaced by longtime director Christopher Coleman, the company said on Wednesday.
The Louisville, Ky.-based quick-service pizza delivery chain also said it is buying out most of the shares Smith’s Starboard Capital still owns. Papa Johns said it would buy nearly 2.2 million shares from Starboard at $82.52 per share, or nearly $180 million.
Before the repurchase, Starboard owned 2.8 million shares, according to the financial services site Sentieo/AlphaSense. They were what remained of $250 million in preferred shares the hedge fund acquired in 2019, when Papa Johns was struggling to emerge from a controversy surrounding its founder, John Schnatter.
The company has done fine since then. Papa Johns overhauled management, adding CEO Rob Lynch and bringing in NBA star-turned-pitchman Shaquille O’Neal as a director and spokesman. The company used higher-end pizzas such as Stuffed Crust pizza and add-on items such as Papadias while the pandemic led consumers to order delivery in droves.
Papa Johns previously bought out much of the shares Starboard owned two years ago for $184 million. Not counting the 582,432 shares Starboard will own after the sale, that means the hedge fund turned its $250 million investment into $364 million. Papa Johns’ shares have doubled in value since the initial Starboard investment.
“When we invested in the company four years ago, it faced substantial challenges,” Smith said in a statement. He cited the company’s “significant progress” in “customer experience, financial performance, share price performance and corporate governance.”
“Given the strength of the team, board and overall health of Papa Johns, I felt like now was the right time for me to step down and transition board leadership,” Smith said.
Lynch praised Smith and Starboard for providing “crucial guidance and insights that have helped drive our turnaround over the last four years.”
Papa Johns said it will use funds from a $425 million share repurchase authorization. Papa Johns has bought back more than 10% of its shares since making that authorization in 2020. By buying back the Starboard shares itself, the company believes it was able to reduce the impact on its shares from the hedge fund selling the shares on the open market.
“This agreement provided us with a unique opportunity to repurchase a meaningful number of outstanding shares while reducing any potential overhang from an expected Starboard sale,” Coleman said in a statement. Papa Johns’ new board chair has been a director with the company since 2012.
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