Papa John’s swallows a poison pill

The company took steps to ward off a potential hostile takeover from its founder, or others.
Papa John's

Papa John’s on Sunday adopted a so-called poison pill plan in a bid to ward off a potential hostile takeover from its founder, John Schnatter, or anybody else.

The company adopted a stockholder rights plan, designed to prevent people from amassing 15% or more of Papa John’s shares on the open market—or, in the case of Schnatter, more than 31%.

Schnatter still owns 30% of the company that he founded in 1984. He stepped down earlier this month after using a racial slur during a conference call and amid reports of a toxic work culture at Papa John’s.

He has since said he regrets stepping down, suggesting he could ignite a fight with the board to take control of the company. Schnatter would not likely need to acquire many more shares to regain that control, given his already heavy ownership of the company.

Papa John’s stockholder rights plan is designed to provide the board with “time to make informed decisions that are in the best long-term interests of Papa John’s and its stockholders.”

The plan also “does not deter the Papa John’s board of directors from considering any offer that is fair and otherwise in the best interest of Papa John’s stockholders.”

News that Schnatter used a racial slur has become a nightmare for Louisville, Ky.-based Papa John’s. The company has lost many of its relationships with advertising and marketing agencies and its deal with MLB and several sports teams, and its name is no longer on the University of Louisville’s football stadium.

Chris O’Cull, analyst with Stifel, downgraded the company’s stock to sell over the weekend, saying that the company “is in a precarious position—needing a strategic savior but struggling to find one willing to underwrite a transaction given the brand damage.”

O’Cull said that his own channel checks at Papa John’s suggest that same-store sales are down in the “mid-teens” the past several days.

He said that franchisees could need financial support through royalty relief or other strategies as sales weaken.

Stock in Papa John's plunged more than 9% Monday. 

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