John Schnatter, who founded Papa John’s and 18 months ago was its chairman, CEO, largest shareholder and spokesman, has hired financial advisers to explore a sale of some or all of his massive holdings in the pizza chain, according to a federal security filing Tuesday.
The filing follows his official departure from the board of directors April 30, and culminates a gradual end of his once-substantial role with the company that began with controversial statements he made on a conference call in November 2017.
Schnatter currently owns 31% of Papa John’s, nearly 10 million shares. His sale of that interest would have a substantial impact on the company’s stock price.
Papa John’s has been working feverishly for several months to distance itself from its founder, who sent the chain’s sales tumbling when he blamed NFL player protests for weak TV ratings and his chain’s weakening same-store sales back in 2017.
Schnatter then resigned as CEO, handing the title to the company’s president, Steve Ritchie, on Jan. 1, 2018.
Last July, however, Schnatter acknowledged making a racial slur during a conference call designed to help improve his image. The issue led to his resignation as chairman, and the company subsequently removed him from its marketing—Schnatter had been the chain’s central face on its advertisements for several years, and his face was on every pizza box.
The controversy plunged the company into months of uncertainty, which ended earlier this year when Papa John’s took a $200 million investment from hedge fund Starboard Value, making its CEO, Jeffrey Smith, board chairman.
In March, Papa John’s and Schnatter agreed to a deal in which the founder would leave the board and be replaced with an independent director.
Papa John’s then named former NBA star Shaquille O’Neal to its board of directors and made him a brand ambassador. O’Neal also invested in nine Papa John’s locations in the Atlanta area.
Same-store sales fell 7.3% in 2018, and the controversy with Schnatter cost the company $51 million.
Papa John’s reports its first-quarter earnings after the market closes Tuesday. Papa John’s shares were down slightly through morning trading, but they are up by a third so far this year as shareholders have cheered the chain’s moves.
Chris O’Cull, an analyst with Stifel, estimates that it could take nine months for Schnatter to sell his shares on the open market. That could then make it easier for Papa John’s to sell the company, given that it no longer has a single, massive shareholder to appease.
O’Cull wrote that the sale could be an indication that Schnatter has lost confidence in the business. But he does not believe the sale would have any positive impact on Papa John’s sales, even if the move would remove the controversial founder from his last role with the company.
“We are not convinced the average consumer will realize he/she is not enriching Mr. Schnatter when they purchase a Papa John’s pizza, if he sells his stock,” O’Cull wrote.