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Papa John’s stock surges on sale reports

A report says the company is asking potential buyers to submit bids.
Photograph by Shutterstock

Papa John’s stock surged as much as 10% on Wednesday amid reports that either the company, John Schnatter or both is pursuing a sale.

Reuters, citing anonymous sources, reported that the Louisville, Ky.-based pizza chain has asked potential buyers to submit offers for the company.

A Papa John’s spokesman said the company doesn’t comment on “market rumors.”

That report followed another report, by CNBC, saying that Schnatter himself was approaching private-equity firms in a bid to buy the company. The report said that several firms turned him down, concerned about Schnatter’s reputation.

Terry Fahn, a spokesman for Schnatter, denied the report.

“John Schnatter has not reached out to or had any discussions with any private-equity firm or any other entity about buying Papa John’s,” Fahn said. “Any such report about a potential transaction involving Mr. Schnatter is totally and completely false. It is unfortunate that CNBC published this false story without first contacting Mr. Schnatter to obtain the true facts.”

The reports once again raised the prospect that Papa John’s could get sold as it works to reverse what has been the most difficult period in the chain’s history.

The company is facing a major crisis after Schnatter last November appeared to blame NFL player protests during the national anthem for Papa John’s weakening same-store sales. He resigned as CEO and then stepped down as chairman after acknowledging using a racial slur during a conference call.

The company has since removed its founder from marketing and ads and has worked to distance itself from Schnatter.

But Schnatter still has a seat on the board and owns 30% of the company’s stock. He has become an activist, having sued Papa John’s while blaming existing company management, including his own hand-picked successor as CEO, Steve Ritchie, for the company’s sales problems.

Observers have long speculated that a sale would be the best way out for the chain—and that Schnatter himself could engineer a sale by working with investment groups, thereby leveraging the 30% he already owns.

Papa John’s adopted a “poison pill” provision shortly after Schnatter’s departure, largely aimed at keeping him from acquiring more shares on the open market in a hostile takeover bid.

The controversy that erupted in July seemed to kill talks between Schnatter and The Wendy’s Co. about a potential merger.

Papa John’s stock has fallen more than 13% year to date, even after Wednesday’s surge. It is down by a third over the past year.

Yet buyers would have to grapple with a system that faces continued store closures. One analyst estimates that the company could lose 150 to 250 locations over the next six months if sales challenges persist—even after Papa John’s provided royalty relief to franchisees.

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