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Papa John’s stock plunges on its latest sale report

The company is reportedly no longer for sale, but is looking for an investor as it seeks to recover from a tough year.
Photograph: Shutterstock

Papa John’s stock fell nearly 8% on Friday after another media report poured cold water on the company’s prospects for a sale.

According to Reuters, the Louisville, Ky.-based pizza chain is no longer searching for an outright buyer, as bids for the company were not strong enough to take the company private.

Instead, Papa John’s is looking for a private investor who could provide the company with an equity injection. The investment would provide Papa John’s with a financial boost following a brutal year in which its same-store sales plunged and franchisees closed units.

Papa John’s refused comment on the report.

The company’s stock neared its 52-week low at just under $39 per share.

The prospect that Papa John’s is no longer for sale only adds to the uncertainty surrounding the 5,200-unit chain, which has struggled for more than a year amid controversy involving the chain and its founder and former CEO, John Schnatter.

The company is locked in a battle for control with Schnatter, who resigned as chairman in July after acknowledging the use of a racial slur during a conference call with a media consultant—who was brought in following comments Schnatter made during an earnings call in November, appearing to blame NFL player protests for Papa John’s weak same-store sales.

Schnatter remains a company director and owns more than 30% of company stock. He has hired financial advisers to increase shareholder value; previous reports suggested he has talked with private-equity firms about a takeover of the company.

Schnatter has blamed much of the company’s sales challenges on current CEO Steve Ritchie and has suggested it did a poor job of responding to the controversy.

Papa John’s stock has been on a roller coaster ride since Schnatter departed. The company’s stock had lost half of its value over the course of a year by last July, as sales weakness and the earnings call and then reports of the racial slur cost the company investors.

But they surged again as reports suggested Papa John’s was for sale and that a number of buyers were interested in taking the chain private, including Inspire Brands owner Roark Capital and Bain Capital.

Reports since then, however, have taken the shares down—the stock price is down by a third since November.

A potential sale of Papa John’s was always uncertain, given the company’s valuation and its ownership uncertainty and the decline in unit count.

Papa John’s net income declined by 79% in the first nine months of 2018 and the company reported a $13 million loss in the quarter ended Sept. 30, when the company’s same-store sales fell nearly 10%.

The company shrunk by 85 locations in North America in the first nine months of 2018, with 151 closures offset by 62 openings. Papa John’s has been providing royalty relief to franchisees in a bid to keep them open.

Those concerns could have kept buyers from bidding a high enough price for the company to convince its board of directors to OK a sale.

The equity investment would be structured as a private investment in a public company, Reuters suggested. Other public companies have used such equity injections to provide short-term liquidity following difficult years. Noodles & Co., for instance, took similar equity injections from L Catterton and Mill Road Capital in 2017 as it sought to recover from its own sales challenges.

The infusion provided Noodles with some financial stability, and this year its same-store sales have been in recovery.

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