Top Papa John’s executives get change-in-control deals

Steve Ritchie and others would get paid if they lose their jobs following a sale, says RB’s The Bottom Line.
Photograph: Shutterstock

The Bottom Line

Top Papa John’s executives, including CEO Steve Ritchie, will get bonuses if the company is sold—the clearest evidence that a sale of the Louisville, Ky.-based pizza chain is on the block, and that a sale is increasingly possible.

Ritchie, named CEO last December following the resignation of founder John Schnatter, would get a payment equal to 36 months’ salary as a severance payment if he is replaced following a sale of the company.

CFO Joseph Smith and Mike Nettles, the chain’s chief operating and growth officer, would get payments equal to 24 months of their base salary if they lose their jobs following a sale. All the executives would also get prorated bonuses.

Such payments are designed to keep the executives around during a sale process. But they also protect the executives in case a buyer opts to replace them should the company get sold. The severance agreements would pay the executives if they get terminated within two years of the sale.

The agreements were revealed in an SEC filing Friday afternoon.

Papa John’s also agreed to pay “retention equity grants” to each of the executives. The grants, which include some stock, are equal to three times Ritchie’s base salary and two times the salary of Smith and Nettles.

Ritchie received a base salary of $820,377 last year, according to SEC filings. Schnatter, his predecessor as CEO, received $900,000.

And company executives with the title of senior vice president or higher who are members of the company’s executive leadership team will receive severance pay equal to nine months of base salary if they are terminated after a sale.

The filing suggests that Papa John’s is clearly up for sale. There is no point, after all, in giving an executive such a severance deal or retention bonus unless the company is talking with buyers. And there has been a lot of smoke on that front in the past few weeks.

Shares in the company surged last week after reports that a handful of private-equity firms are in talks to buy the chain, including Roark Capital, Bain Capital and CVC Capital Partners. The activist investor Trian Fund could also invest in the company if a sale doesn’t go through.

Signs of a potential sale are coming after an unprecedented, yearlong controversy surrounding Schnatter, which began a year ago when the founder appeared to blame NFL player protests for the chain’s weakening same-store sales.

Controversy that erupted after the comments ultimately led to his resignation as CEO. It also led the company to hire a firm to help Schnatter avoid public relations snafus. It was on a conference call with that firm that Schnatter apparently uttered a racial slur, leading to his July resignation and an end to his founder’s agreement with the company.

Papa John’s also removed Schnatter from its marketing.

Same-store sales have fallen steeply this year, putting some franchisee units in danger. But there’s a sense among many observers and investors that the chain has strong potential once it can get past that controversy.

Regardless, Schnatter will have a big say in any potential sale: He still owns 30% of Papa John’s stock.

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